Nov. 4 (Bloomberg) -- Brazilian stocks gained for a second day after pulp producer Aracruz Celulose SA agreed with banks to unwind its wrong-way currency bets and Banco Itau Holding Financeira SA bought its rival, easing concern derivatives losses and credit seizures will threaten the financial system.

Aracruz, the world's biggest eucalyptus-pulp maker, surged for a fourth day after agreeing to negotiate terms to restructure the debts. Itau led gains on the Bovespa index after Citigroup Inc. said the bank bought Uniao de Bancos Brasileiros SA at a ``very attractive'' price. Cia. Vale do Rio Doce, the world's biggest iron-ore producer, rose 5.6 percent after commodity prices jumped and analysts recommended buying the shares.

``Brazil got caught up in a liquidity crunch and Brazil got punished unfairly,'' said Bill Rudman, who helps manage $3 billion of emerging-market equity at WestLB Mellon Asset Management in London. ``The world is a happier place now. Aracruz put a line under its losses and is now turning off the taps.''

The Bovespa rose 3.8 percent to 39,695.81 at 10:25 a.m. New York time. Chile's Ipsa climbed 1.5 percent. Mexico's Bolsa gained 2.1 percent. The MSCI Emerging Markets Index advanced 2.6 percent. U.S. stocks advanced in an Election Day rally.

Aracruz jumped 4.7 percent to 2.87 reais after reaching an agreement with banks to unwind 97 percent of its wrong-way currency derivatives, leading to a loss of $2.13 billion.

The Brazilian currency rose the most in a week today, easing concern about derivatives losses stemming from wrong-way bets on the real. Companies that bought derivatives contracts betting the real would extend gains versus the dollar have probably lost $7 billion, less than most market estimates, Valor Economico reported Oct. 31, citing Planning Minister Paulo Bernardo.

Banks Gain

Itau gained 7.7 percent to 29.18 reais, while Unibanco advanced 7.6 percent to 16.11 reais. The acquisition, which creates the Latin America's biggest financial group, adds about 15.5 billion reais (7.9 billion) in value for the combined company, Morgan Stanley analysts Jorge Kuri, Jorge Chirino and Fabio Zagatti wrote in a report. Citigroup analysts said Itau acquired Unibanco at a ``very attractive valuation.''

Vale, the world's biggest iron-ore producer, led a rally in raw-material producers after commodity prices jumped and analysts recommended buying the shares.

Banco Santander SA said Vale may remain profitable even if commodity prices decline, citing the company's decision to lower production to avoid losing money. Citigroup analysts reiterated their ``buy'' rating for Vale, saying that the shares are underpriced. The shares had fallen 47 percent this year.

Vale jumped 9 percent to 14.59 reais today.

Gerdau SA, Latin America's biggest steelmaker, surged 8 percent to 15.05 reais after denying a news report that it plans to halt output at four or more steel mills because of slowing global demand.

The Reuters/Jefferies CRB Index rose 2.7 percent.

JBS SA, the world's largest beef producer, gained 3.8 percent to 4.15 reais after posted the first profit in a year on rising exports from U.S. units and winning bets on the currency.

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.

Last Updated: November 4, 2008 10:50 EST