Nov. 23 (Bloomberg) -- Brazil’s real advanced for the first time in four days as gains in commodities increased speculation that foreign currency flows to Latin America’s biggest economy will rise.

The real strengthened 0.4 percent to 1.7250 per dollar at 10:41 a.m. New York time, from 1.7314 on Nov. 20. Brazil’s currency is the best performer among the 16 most actively-traded currencies tracked by Bloomberg this year, having gained 34 percent against the U.S. dollar.

“Commodities and a more positive outlook for the U.S. economic recovery are encouraging people to buy Brazilian assets,” said Gabriel Levy, a strategist at Sparta Administradora de Recursos in Sao Paulo.

A better-than-forecast increase in U.S. existing home sales also boosted optimism among investors that the global economy is recovering, reducing aversion to riskier emerging-market assets.

Products such as sugar and steel rose as a weaker dollar boosted the appeal of commodities. Brazil is the world’s biggest sugar producer and the biggest exporter of iron ore, the main ingredient in steel production.

The real’s gains are limited today by speculation the government may impose new measures to curb foreign currency flows to local markets, said Joao da Silva Ferreira Neto, a currency trading director at Nova Futura DTVM Ltda, a Sao Paulo- based brokerage.

“People are concerned about more potentially damaging tax measures,” Ferreira said.

IOF Tax

The real has weakened in four out of five weeks after the enactment on Oct. 19 of the so-called IOF tax on purchases by foreign investors of stocks and fixed-income securities to curb a rally that has added 43 percent to Brazil’s currency in the past 12 months.

On Nov. 18 the Brazilian government said it would begin taxing the issuance of depositary receipts in international markets in a bid to prevent companies from selling shares abroad rather than locally. The move is meant to “balance” out distortions caused by the 2 percent IOF tax, Economic Policy Secretary Nelson Barbosa said.

“The perspective of new government measures to contain the speed of appreciation” will prevent the real from gaining beyond 1.7 per dollar, Miriam Tavares, director of AGK Corretora in Sao Paulo, wrote in a note e-mailed to clients today.

In the overnight interest-rates futures market, the yield on the contract due January 2011 rose three basis points, or 0.03 percentage point, to 10.19 percent, according to Bloomberg data.

To contact the reporters on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net; Camila Fontana in Sao Paulo at cfontana@bloomberg.net

Last Updated: November 23, 2009 11:01 EST