Brazil's Real Increases on Industrial Production, Trade Data

By Adriana Brasileiro
April 1 (Bloomberg) -- Brazil's real gained as a widening trade surplus and industrial production data led traders to increase bets that investment flows will boost the currency.
The real rose 0.4 percent to 1.7444 per dollar at 4:48 p.m. New York time, after most trading in Brazil had ended. The real reversed a decline of as much as 0.3 percent earlier.
``The real will continue to surprise on the upside, there's no question about that,'' said Mario Cebrian, head of foreign exchange trading at Banco Standard de Investimento in Sao Paulo. ``In the short term, we'll see volatility and more aversion because of the U.S. troubles, but the yield differential story and trade flows are still the fundamental factors.''
Brazil's industrial output rose the most in four months in February, boosting expectations the central bank will raise interest rates to cool the economy as inflation accelerates.
Output climbed 9.7 percent in February from the previous year, the government statistics agency said today. It was the 20th straight year-over-year monthly gain.
The central bank said in the minutes of its March 4-5 meeting it considered raising the benchmark interest rate to restrain demand, as inflation quickened above the 4.5 percent annual consumer prices target set by policy makers.
The nation's real interest rate, or the 11.25 percent Selic benchmark lending rate minus annual inflation of 4.61 percent, is 6.64 percent, among the highest in emerging markets.
Foreign currency flows from the sale of Brazilian products abroad have also helped the real gain 53.7 percent over the past three years.
Trade Surplus
Brazil's trade surplus widened to $1.01 billion in March from $882 million the previous month, the Trade Ministry said.
Brazil's Finance Minister Guido Mantega said today that ``excessive'' gains in the real must be avoided.
``We must provide the conditions to avoid an excessive appreciation of the real since it damages the competitiveness of our exports,'' Mantega said during an address at the Presidential Palace.
The yield on Brazil's overnight interest-rate futures contract for January delivery fell 2 basis points, or 0.02 percentage point, to 12.34 percent. That is more than 1 percentage point above the central bank's target overnight rate of 11.25 percent, showing traders are betting policy makers will raise the rate this year to curb inflation.
The yield on Brazil's zero-coupon bond due in January 2010 fell 1 basis point to 13.26 percent, according to Banco Votorantim SA.