Brazil stocks hit record on rate cut bets, real up

Wed Apr 19, 2006 4:26 PM ET

SAO PAULO, Brazil, April 19 (Reuters) - Brazil's main stock index closed at its second record high in two days on Wednesday, helped by bets the country's central bank will cut interest rates to boost economic growth.

The Bovespa <.BVSP> index finished 0.92 percent higher at 39,937.7 after briefly piercing the 40,000-point mark for the first time ever.

Banking giant Bradesco (BBDC4.SA: Quote, Profile, Research) gained 3.87 percent to 79.45 reais, in part on expectations lower interest rates will bolster its credit portfolio.

The local currency, the real <BRBY>, strengthened 0.14 percent to end at 2.114 a U.S. dollar, even though the central bank sold $604 million in currency swaps designed to weaken the real for the first time in over a month.

It also bought dollars on the spot market to build up foreign reserves. Exporters favor a weaker real since it makes their products more competitive on world markets.

Local markets were also helped as risk premiums for Brazil fell 9 basis points to 225, according to J.P. Morgan's EMBI+ index of emerging market sovereign bonds.

Emerging markets such as Brazil rallied on Tuesday on bets for a coming end to U.S. rates hikes, implied in a release of Federal Reserve minutes. U.S. rate hikes tend to drain away capital from emerging markets.

The real is near its strongest level in five years thanks to record exports and a high domestic base interest rate, currently at 16.5 percent, that have attracted billions of dollars in foreign investment.

Later Wednesday, Brazil's central bank is widely expected to reduce its benchmark rate at a monetary policy meeting by 0.75 percentage point as mild inflation allows it to try boosting economic growth.