Oct. 17 (Bloomberg) -- Brazil's central bank will tap foreign reserves to begin offering loans next week so local banks can help finance exporters hurt by the credit crisis.

Authorities will hold a first auction of as much as $2 billion on Oct. 20 and will accept Brazilian sovereign global bonds as collateral. The central bank plans to hold more auctions. The size and frequency of such sales will depend on demand, central bank President Henrique Meirelles said today in Sao Paulo.

``The banking crisis in the U.S. and Europe created a severe liquidity restriction in international trade, and Brazil is part of this market,'' Meirelles said. ``Brazil has enough reserves to address this issue that was generated abroad.''

Brazil is drawing on record reserves built up during the six-year commodities rally to ease a credit crunch and support the local currency. The measures announced today will help trade loans return to pre-crisis levels by the end of October, Meirelles said. Brazilian reserves fell to $203.94 billion Oct. 16 from $208.37 billion Oct. 7.

``Our reserves are significantly greater than potential demand for this type of transaction,'' he said. The central bank will punish institutions that fail to use the foreign currency bought at the auctions to fund trade, he said.

All finance institutions authorized to trade in the Brazilian currency market will be allowed to take part in the auction, Meirelles said.

The central bank has also taken measures to inject as much as 160 billion reais ($76.4 billion) in the financial system since Sept. 24 to help small and medium-sized lenders struggling to cope with the crisis. The central bank has identified signs that the situation is improving for smaller lenders, Meirelles said today.

The central bank will accept other types of collateral at auctions of foreign loans after Oct. 20, including sovereign bonds issued by other nations, Meirelles said.

To contact the reporters on this story: Telma Marotto in Sao Paulo at tmarotto1@bloomberg.net

Last Updated: October 17, 2008 15:10 EDT