Brazil's current account surplus rose to $1.76 billion in August and foreign direct investment surged after Belgian Interbrew's multibillion dollar purchase of local brewer AmBev central bank figures showed on Wednesday.

The jump in foreign direct investment to $6.09 billion in August from $980 million the same month a year earlier prompted the bank to sharply raise its FDI forecast for 2004, underpinning Brazil's strengthening foreign financial position.

The bank raised its 2004 FDI estimate to $17 billion from a previous forecast of $12 billion and said FDI should reach $14 billion next year. In 2003 FDI reached $10.14 billion and the bank expects it to stand at $700 million in the month of September.

The bank said $4.9 billion of last month's FDI total was from a stock swap among companies, which it did not identify. Economists said the bank was referring to Belgium-based Interbrew's purchase of Ambev to create the world's No. 1 brewer in volume terms, surpassing U.S.-based Anheuser-Busch Cos.

Foreign direct investment is a widely seen as a gauge of confidence in the economy since it involves foreign entities sinking cash into fixed assets like factories, as distinct from short-term financial flows.

The current account -- the widest measure of a country's s foreign transactions which also includes trade in physical goods as well as so-called 'invisibles' such as tourism and short-term banking flows -- rose in August by 45 percent from $1.21 billion in August 2003.

Last month's increase raised Brazil's current account surplus to 1.77 percent of gross domestic product in the 12 months to August, up from 1.69 percent in the year to July.

"The situation in the foreign accounts is looking very good," said Constantin Jancso, an economist at the MCM consultancy in Sao Paulo, adding the numbers were in line with expectations.

The bank sees a current account surplus of $2 billion in September.Brazil's current account surplus has been powered higher by a surge in exports and high prices for some of its key commodities such as soybeans, sugar and coffee, of which Brazil is the world's No. 1 producer.

Reflecting this surge as well as increased exports of manufactured goods, the bank raised its 2004 trade surplus forecast to $30 billion from a previous estimate of $26 billion.

But the bank forecast a lower current account surplus next year, of $100 million, due to a decline in the trade surplus to an estimated $24.5 billion. The bank has tended to err on the conservative side when it makes its first annual forecasts of the coming year's current account balance.

Still, with Brazil's economy rebounding to a widely predicted growth rate of more than 4 percent this year after contracting 0.2 percent in 2003, its worst performance in a decade, the current account should lose some of its gloss as imports rise.

Jancso said that next year more Brazilians are likely to travel as their personal finances improve, hitting the international travel segment, which is included in the current account.

"Basically, people will go back to Disney World," he said. "With the economy growing, more people will be encouraged to travel."

Reflecting the improving outlook for Brazil's economy and its foreign accounts, the Central Bank reopened a Eurobond on Wednesday that it first issued earlier this month.

The bank issued 250 million euros of the bond, which matures in 2012, on Wednesday at a spread of 439 basis points over German Bunds, which are German government bonds, below the original issue spread of 477 basis points.

The bank said that with Wednesday's bond, the country had met its planned 2004 foreign bond issuance of $5.5 billion. It said Brazil intends to raise $6 billion in bonds abroad to cover 2005 financing needs.

(From Reuters, September 22, 2004)

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