Real Rises on Brazil Bank Signal, U.S. View; Rate Yields Fall

The real advanced for a second day as investors speculated Brazil’s central bank may act to contain further declines in the currency, while the outlook for faster growth in the U.S. boosted demand for emerging-market assets.

The real strengthened 0.5 percent to 1.8507 per dollar at 9:49 a.m. in Sao Paulo, from 1.8602 yesterday. It’s down 2.8 percent this week, the third-worst performance among 25 emerging-market currencies tracked by Bloomberg.

Brazil’s decision yesterday to lend out foreign reserves is a sign to Citigroup Inc. that policy makers are seeking to stop a slide in the real that may limit their ability to cut interest rates. Global stocks, U.S. index futures and commodities climbed as better-than-forecast U.S. data signaled the world’s biggest economy is strengthening.

“The signal is that the central bank will act if the dollar continues to rise,” said Luciano Rostagno, chief strategist at Banco WestLB do Brasil SA in Sao Paulo. “Some of the optimism on yesterday’s indicators out of the U.S. is holding.”

In the interest-rate futures market, yields on the most- active contracts declined. The yield on the contract due in January 2013 fell two basis points, or 0.02 percentage point, to 9.88 percent. That trims the increase this week to two basis points.

The central bank held an auction yesterday to sell dollars and repurchase them as soon as one month later, bringing back a mechanism it last used after Lehman Brothers Holdings Inc. collapsed in September 2008. While no bids were accepted, the real extended gains after the announcement.

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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