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Brazil Swap Rates Rise on Sign of U.S. Recovery; Real Declines

Brazil’s swap rates climbed as evidence the U.S. economy is rebounding fueled speculation that local policy makers will step up increases in borrowing costs to curb inflation.

Swap rates on the contract due in January 2015 rose four basis points, or 0.04 percentage point, to 8.59 percent at 10:15 a.m. in Sao Paulo, extending their increase this week to seven basis points. The real depreciated 0.2 percent to 2.0472 per dollar and was down 0.6 percent since May 17 in a fourth weekly decline, the longest losing streak since October.

Brazil’s central bank raised the target lending rate last month by a quarter-percentage point to 7.50 percent to curb inflation. Policy makers had lowered borrowing costs by 5.25 percentage points in reductions that began in August 2011 to support economic growth.

“External uncertainties” require that Brazil’s monetary policy “be managed with caution,” the central bank said in a statement accompanying its decision. The board’s next rate-setting meeting is May 28-29.

Orders for U.S. durable goods increased more than forecast in April, the Commerce Department reported in Washington today, pointing to gains in business investment that will help manufacturing rebound in the second half of the year.

To contact the reporter on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

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

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