May 29 (Bloomberg) -- Brazil had its credit rating raised to investment grade by Fitch Ratings, following an increase by Standard & Poor's last month, as record commodity exports bolster foreign reserves and growth in Latin America's biggest economy.

Fitch raised Brazil's foreign-currency debt rating to BBB-, the lowest investment-grade level, from BB+, matching a move made by S&P on April 30. The increase will give the South American country better access to capital markets because some institutional investors can only buy securities issued by countries with at least two investment-grade ratings.

``There were funds just waiting for this to happen,'' said Alexandre Lintz, an economist at BNP Paribas in Sao Paulo. ``This is very positive for investment flows.''

Brazil's currency extended gains after the Fitch announcement and bonds pared losses. Fitch said in a statement that a ``dramatic improvement'' in Brazil's trade and fiscal accounts have reduced the country's ``vulnerability to external and exchange-rate shocks and entrenched macroeconomic stability.''

Brazilian exports have tripled since President Luiz Inacio Lula da Silva took office in 2003 amid a surge in global demand for steel, iron-ore, soybeans, orange juice and sugar. The economy expanded 5.4 percent in 2007, the fastest rate in three years, buoyed by rising exports and falling interest rates. Brazil, once the world's largest emerging-market debtor, became a net foreign creditor for the first time in January.

Yield Spreads Narrow

The currency jumped 1.1 percent to 1.6370 reais per dollar at 4:06 p.m. New York time, extending its rally to 8.7 percent this year and to 79 percent over the past five years. Earlier today, the real touched 1.6347, its strongest in nine years.

The yield on the government's zero-coupon bonds due January 2010 fell 19 basis points, or 0.19 percentage point, today to 14.31 percent, according to Banco Bradesco SA. The extra yield investors demand to own Brazil's dollar bonds rather than Treasuries shrank 16 basis points to 1.91 percentage points, the narrowest since Nov. 7, according to JPMorgan Chase & Co.'s EMBI Plus index.

The Fitch move ``is potentially the door opening to some investors who now can buy Brazil in the fixed-income market,'' said Geoffrey Pazzanese, who helps manage $44 billion in global stocks at Federated Investors Inc. in New York.

The risk of owning Brazilian bonds fell to the lowest since May 19, according to Bloomberg data. Five-year credit default swaps based on the country's debt dropped 6 basis points to 0.895 percentage point. That means it costs $89,500 to protect $10 million of the country's debt from default.

Moody's Rating

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

``The rating will increase demand from investors indexed to high-grade indices that have emerging market constituents,'' said David Spegel, head of emerging-market strategy at ING Financial Bank NV in New York. ``Brazil's external debt will benefit from being included in high-grade indices.''

Brazil's economic expansion has fueled a rally of more than 250 percent over the past four years in the benchmark Bovespa stock index. The index slid 2 percent today, trimming its advance this year to 12 percent.

Moody's Investors Service still has Brazil rated one level below investment grade, at Ba1.

Brazil needs to reduce debt and spending while lengthening the maturity of its debt before it can earn an investment-grade credit rating, Mauro Leos, a senior credit officer at Moody's in New York, said in a May 6 interview. He said the conditions for a rating increase likely won't be in place this year.

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net

Last Updated: May 29, 2008 16:19 EDT