Brazil's economy expanded more than expected in the second quarter despite sky-high interest rates imposed by the central bank in a bid to keep inflation in check, the government said Wednesday.

Gross domestic product in South America's largest economy grew at a rate of 3.9 percent from April through June compared with the same period a year ago, according to the Brazilian Census Bureau. Analysts surveyed by Dow Jones Newswires had predicted a rate of 3.3 percent.

The news helped push stocks up 0.2 percent on Brazil's benchmark Bovespa exchange in Wednesday morning trading. The country's currency, the real, rose 0.4 percent against the U.S. dollar.

The GDP result could prompt analysts to raise their outlook for Brazil's overall 2005 growth. Estimates currently range from 2.8 percent to 3.5 percent.

The second quarter result showed that companies are increasing their investments in machinery and equipment even though the benchmark Selic lending rate stands at a towering 19.75 percent.

But the rate, one of the highest in the world, has helped bring annual inflation down to an estimated 5.3 percent for 2005, close to the government's target of 5.1 percent.