Brazil currency strongest since 1999; stocks firm

Tue Feb 26, 2008 4:55pm EST
(Updates to close)
SAO PAULO, Feb 26 (Reuters) - Brazil's currency rose on Tuesday to its strongest level since May 1999 on inflows from investors seeking high returns from the country's domestic interest rate, while stocks firmed as shares of banks gained.
The real BRBY surged more than 1 percent to 1.684 per U.S. dollar -- the first time it has closed stronger than 1.7 to the greenback since May 1999, only months after the government devalued the currency and let it float freely.
The real has already rallied 5.5 percent this year, adding to its 20-percent gain in 2007.
Brazil's benchmark lending rate of 11.25 percent is among the highest in the world, luring funds from countries such as Japan, where borrowing costs are much lower.
"Everyone is coming here" because of the high rates, said Julio Cesar Vogeler, a currency trader at the Didier Levy brokerage. "There is a lot of confidence in the Brazilian economy."
Foreign investors have been pouring cash into Brazil over the past few years, attracted by high-yielding government bonds and high interest rates. Surging commodities prices have also lifted export revenue coming into the country, further bolstering the real.
The Bovespa index .BVSP of the Sao Paulo Stock Exchange rose 0.28 percent to 65,182.61 points, led higher by shares of Bradesco and Itau, Brazil's two biggest private sector banks.
Bradesco (BBDC4.SA: Quote, Profile, Research) rose 3.92 percent to 53.25 reais, while Itau (ITAU4.SA: Quote, Profile, Research) gained 2.83 percent to 44.01 reais as expectations that U.S. financial firms may avoid further credit market losses helped fuel demand for banking stocks globally.
Banco do Brasil (BBAS3.SA: Quote, Profile, Research) shares tumbled nearly 5 percent to 28.51 reais after it posted a 16 percent drop in full-year net profit for 2007 due to a large one-time charge and rising costs.
Interest-rate futures <0#dij:> on the BM&F commodities and futures exchange in Sao Paulo edged higher after official data showed that Brazil's benchmark inflation index rose more than expected in the month through mid-February. (Reporting by Elzio Barreto and Silvio Cascione)