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Brazil Swap Rates Fall as Bernanke Overshadows Retail Sales Gain

Brazil’s swap rates dropped for a second day as Federal Reserve Chairman Ben S. Bernanke’s warning that budget wrangling is weakening the world’s largest economy overshadowed a pick-up in Brazilian retail sales.

Swap rates on contracts due January 2014 fell two basis points, or 0.02 percentage point, to 7.06 percent. The real depreciated 0.6 percent to 2.0856 per dollar.

Bernanke yesterday said the Fed “doesn’t have the tools” to offset the consequences if U.S. lawmakers fail to reach a budget agreement and trigger more than $600 billion in tax increases and spending cuts set to take effect next month. In Brazil, October retail sales rose at the fastest pace in three months.

“The data that came out today in Brazil was good, but the worry over this fiscal question in the U.S. is bringing swap rates down,” said Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil SA in Sao Paulo.

Retail sales increased 0.8 percent in October from the prior month, the national statistics agency reported today. The median forecast of economists surveyed by Bloomberg was for a 0.7 percent increase.

The real weakened after Bernanke’s expansion of monetary stimulus undermined confidence that global growth will strengthen, said Andre Perfeito, chief economist at Gradual Investimentos in Sao Paulo.

“There’s some discomfort, with the decision being seen as a little desperate after Bernanke warned that monetary policy won’t avoid fiscal risks,” Perfeito said in a telephone interview.

The real gained 2.9 percent last week, the biggest one-week advance since January as the government reduced maturity of foreign loans subject to a 6 percent tax to one year from two years and exempted exporters from the same level of tax on some borrowing.

The central bank sold $2.1 billion in currency swaps and $1.6 billion on Nov. 23 to stem the real’s declines. From August through October, the bank sold reverse currency swaps to keep the real weaker than 2 per dollar.

Policy makers have swung in 2012 between selling currency swaps aimed at preventing the real from depreciating too quickly and offering reverse currency swaps to protect exporters by keeping the real from strengthening.

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