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Brazilian Real Climbs to Five-Week High on Bernanke Rate Signal

Brazil’s real climbed to a five-week high after Federal Reserve Chairman Ben S. Bernanke signaled the U.S. will keep interest rates low, encouraging investors to buy higher-yielding emerging-market assets.

The real erased earlier losses and gained 0.3 percent to 1.6593 per U.S. dollar at 3 p.m. New York time and climbed to as strong as 1.6585 per dollar, the strongest level since Jan. 4.

Bernanke told the House Budget Committee today that “inflation is expected to persist below the levels that Fed policy makers have judged to be consistent” with their dual mandate from congress for stable prices and maximum employment. The U.S. Dollar Index, a measure of the international value of the greenback, fell for a third day.

“The Fed has signaled it will keep interest rates down, and when this occurs the investor runs to other assets,” Reginaldo Galhardo, foreign exchange manager at Treviso Corretora, a Sao Paulo-based brokerage, said in a telephone interview.

Brazilian policy makers said they bought U.S. dollars in the spot market twice today, first at 1.6659 per U.S. dollar and then at 1.6606 reais each. Regular dollar purchases are part of a central bank effort to stem gains in the currency which has increased 39 percent since the end of 2008, the most among emerging-market currencies tracked by Bloomberg in that period.

The gap between yields on Brazil’s interest-rate futures contracts maturing in one year and six years narrowed today as the government announced it planned to cut 50 billion reais from its 2011 budget.

Yields on interest-rate futures contracts due in January 2012 rose one basis point, or 0.01 percentage point, to 12.31 percent. Yields on the contract maturing in January 2017 fell four basis points to 12.52 percent. The difference between yields on the two securities shrank to 21 from an almost three-month high of 45 on Feb. 7.

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