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Brazil Real Advances Most in Two Weeks on Fed Stimulus Outlook

The real gained the most in two weeks as the U.S. dollar weakened amid speculation the Federal Reserve may announce more stimulus measures to boost the world’s largest economy.

The currency gained 1.5 percent to 2.0289 per U.S. dollar, the biggest jump since June 5, trimming its decline this year to 8 percent. The yield on the Brazilian interest-rate futures contract due in January 2014 fell two basis points, or 0.02 percentage point, to 8.03 percent.

“The real is just trading in line with other currencies, which is a rarity these days,” Kenneth Lam, a Latin America currency and local rates strategist at Citigroup Inc., said by phone from New York. Speculation that Brazil’s central bank will revive swap sales to limit losses in the currency faded “now that things are looking brighter, and people are speculating on more quantitative easing,” Lam said.

U.S. Federal Reserve policy makers begin a two-day meeting today amid speculation they will take further steps to boost economic growth. Group of 20 leaders convening in Mexico focused their response to Europe’s financial crisis on stabilizing banks as the International Monetary Fund raised its lending capacity to shield the rest of the world economy.

Interest-rate futures yields fell as the second preview of the Rio de Janeiro-based Getulio Vargas Foundation’s IGP-M index rose at a slower pace. The second preview, which covers producer and consumer prices and construction costs in the 20 days beginning May 21, increased 0.63 percent. The index advanced 0.68 percent in June’s first preview and climbed 1 percent in May’s second preview.

Greek Bailout

“The IGP-M report offset the positive movement in markets abroad,” said Darwin Dib, chief economist at CM Capital Markets Asset Management, in a phone interview from Sao Paulo.

A European Union official said a politically acceptable path for renegotiating Greece’s bailout will be sought. The official spoke to reporters on condition of anonymity in Brussels today.

Antonis Samaras, whose New Democracy party came in first in Greece’s June 17 election, told reporters yesterday that he will hold a second day of talks today after “constructive” meetings with two party leaders.

The central bank has held currency-swap auctions, which are equivalent to selling dollars in the futures market, since mid-May to support the real. The swaps are a reversal of the bank’s dollar purchases, which reached $7.2 billion in April, the most in 13 months.

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