Brazil Real Has Biggest Weekly Gain in Three Years on Auction

Brazil’s real posted the biggest weekly increase in three years after the central bank sold dollars in the futures market, extending gains sparked by Europe’s pact to contain the region’s debt crisis.

The real gained 2.3 percent today to 1.6721 per dollar, from 1.7099 yesterday. It earlier touched 1.6720, the strongest level since Sept. 9. The currency advanced 6.2 percent this week, the most since November 2008.

Brazil’s central bank said it accepted 16,000 bids for currency swap contracts from 30,000 offered today, according to a statement published on the central bank’s website. Policy makers were seeking to roll over contracts previously placed in the market to avoid a weakening of the real, Mauricio Junqueira, who helps oversee about $300 million at Squanto Investimentos in Sao Paulo, said in a telephone interview.

“This helps weaken the dollar,” Junqueira said.

The central bank has sold currency swaps four times starting in September to stem the real’s 13.8 percent decline that month, reversing a 28-month-old strategy aimed at stemming the currency’s rally.

The real gained 2.8 percent yesterday after European leaders persuaded bondholders to accept 50 percent writedowns on Greek debt and boosted the rescue fund’s capacity to 1 trillion euros ($1.4 trillion) in a crisis-fighting package intended to shield the euro area.

Yields on most Brazilian interest-rate futures contracts maturing in January or later fell as consumer prices rose at the slowest annual pace in 15 months and investors bet a strengthening real will help policy makers contain inflation.

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The yield on the futures contract due in January 2013, the most actively-traded in Sao Paulo, fell five basis points, or 0.05 percentage point, to 10.34 percent.

Brazilian wholesale, construction and consumer prices as measured by the IGP-M price index rose 0.53 percent in October, the Getulio Vargas Foundation said. The increase was lower than the median 0.55 percent forecast in a Bloomberg survey of 33 analysts.

“Agriculture prices came in near zero, this helps with food inflation for the consumer,” Marco Antonio Caruso, an economist with Banco Pine SA in Sao Paulo, said in a telephone interview. “A stronger real makes it so that you have lower inflation.”

The IGP-M, the country’s broadest measure of inflation, rose 6.95 percent from a year ago.

The central bank said yesterday that the world economy will slow enough to allow Brazil to make “moderate” interest rate cuts without stoking inflation. Bank President Alexandre Tombini cut the benchmark interest rate a half point for a second straight meeting last week, to 11.5 percent, to protect Brazil from turmoil in world markets.