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Brazil Real Advances to One-Month High on Europe, China Outlook

Brazil’s real rose to a one-month high after the European debt crisis showed signs of easing while a slowdown in Chinese inflation spurred speculation that policy makers in Brazil’s largest trading partner will stimulate growth

The real gained 1.3 percent to 1.7796 per U.S. dollar, from 1.8025 yesterday. It earlier touched 1.7761, the strongest level since Dec. 5.

The real strengthened with most other emerging-market currencies after borrowing costs for Spain and Italy fell at debt auctions and inflation in China eased to a 15-month low. Chinese measures to bolster growth would benefit the currencies of commodity exporters like Brazil, Mauricio Nakahodo, senior economist at CM Capital Markets, said by phone from Sao Paulo.

Spain’s bond auction also “reduces risk aversion,” Nakahodo said.

Yields on most Brazilian interest-rate futures contracts climbed after the country’s retail sales rose 1.3 percent in November from the previous month, surpassing the 0.4 percent median estimate of 29 analysts surveyed by Bloomberg. A 6.8 percent jump from a year earlier also exceeded estimates.

“An increase was already expected, but the pace of gains was stronger than anticipated,” Nakahodo said.

The yield on the interest-rate futures contract due in January 2013 rose four basis points, or 0.04 percentage point, to 10.05 percent.

Budget Cuts

Futures yields earlier pared increases after more people in the U.S. than forecast filed applications for unemployment benefits last week, damping optimism that global economic growth is picking up.

Yields fell earlier in the day after Correio Braziliense newspaper reported that Brazilian President Dilma Rousseff may cut the 2012 budget by as much as 70 billion reais next week to help give the central bank room to keep reducing interest rates, according to Vladimir Caramaschi, chief economist of Credit Agricole’s Brazilian unit. The Finance Ministry declined to comment on the report in an e-mailed statement.

The article “just anticipates spending cuts that are expected to happen,” Caramaschi said in a telephone interview. The U.S. jobless figures “were a splash of cold water on the optimism in the market,” he said.

Central bankers have cut the benchmark lending rate 150 basis points since August to 11 percent to shore up the expansion in Latin America’s biggest economy. Traders are anticipating the central bank will reduce the rate to as low as 10 percent by May, interest-rate futures contracts show.

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