May 20 (Bloomberg) -- Brazil’s real climbed to a seven- month high after a central bank report showed the net inflow of dollars to Latin America’s biggest economy increased in the first half of May.

Foreigners brought to Brazil $2.06 billion more than they sent abroad in the month through May 15. The net inflow is bigger than the $1.4 billion recorded in April, according to a central bank report released today.

“If you consider Brazil’s economic fundamentals and dollar inflows to the country, it’s inevitable to see the real touching 2 per dollar in the short term,” said Paulo Petrassi, who helps manage 45 million reais ($22.3 million) in assets at Leme Investimentos in Florianopolis, Brazil.

The currency rose 0.3 percent to 2.0336 per U.S. dollar at 4:30 p.m. New York time, from 2.0404 yesterday, when most trade in Brazil had ended.

The central bank purchase of dollars today, the ninth since May 8, paired the real’s gain. Earlier, the currency rose as much as 1.4 percent, to 2.0125 per dollar, the strongest since Oct. 3, when it reached 1.9875.

Sidnei Nehme, director at NGO Corretora de Cambio in Sao Paulo, forecast the real can go beyond the 2 per dollar level by the end of the week, he wrote in a note for clients.

The real has strengthened 13.7 percent this year, the second-best performance among the world’s 16 most-actively traded currencies against the dollar, after the South African rand. The real is benefiting from renewed investor demand for higher-yielding, emerging-market assets and from a rebound in prices on the country’s commodity exports.

Mario Battistel, foreign-exchange manager at Fair Corretora de Cambio in Sao Paulo, believes Brazilian exports will lose competitiveness if the real strengthens to 2 per dollar.

“A stronger currency will impact on the prices of Brazilian exports, reducing the trade surplus,” he said.

Brazil’s Bonds

Brazil’s local-currency bonds rose for a third day, pushing yields lower, as prices fell.

Prices as measured by IGP-M index, Brazil’s broadest inflation gauge, declined 0.14 percent in the second preview of May. Economists forecast a 0.10 percent drop, according to the median estimate of 19 analysts in a Bloomberg survey.

“The outlook for inflation brings no worries,” said Silvio Campos Neto, chief economist at Sao Paulo-based Banco Schahin. “The central bank will keep cutting its benchmark” rate.

Policy makers reduced borrowing costs 1 percentage point to a record low of 10.25 percent on April 29.

The yield on Brazil’s zero-coupon bonds due January 2010 fell three basis points, or 0.03 percentage point, to 9.33 percent. Earlier it touched 9.32 percent, the lowest since the securities started trading in October 2007.

In the overnight interest-rate futures market, yields on contracts to January 2010 dropped three basis points to 9.26 percent on the BM&F commodity and futures exchange.

To contact the reporter on this story: Renato Andrade in Sao Paulo at randrade11@bloomberg.net

Last Updated: May 20, 2009 16:59 EDT