Brazil's real gains on dollar inflows, stocks slip

Brazil's currency strengthened in early trade on Monday as exporters repatriated dollars while stocks slipped on rising oil prices.Brazil's real strengthened 0.72 percent to 2.766 per U.S. dollar as heavy dollar inflows allowed traders to shrug off higher petroleum prices.

The main Bovespa index of the Sao Paulo Stock Exchange fell 0.63 percent to 23,881 points as global oil prices spiked on supply troubles in Iraq and low stocks in the United States.

Higher oil prices normally fuel inflation and interest rate hikes in Brazil. Traders fear state-run oil giant Petrobras will soon hike its prices to bring them closer to international benchmarks. Petrobras shares were 0.57 percent higher at 91.02 reais in early trade.Though stocks are suffering, the real continues to test its strongest levels in 2-1/2 years.

"Dollar inflows are very heavy and people aren't having any success weakening the real. This is impacting the futures market and the spot market," Jose Roberto Carreira, head currency trader at the Novacao brokerage in Sao Paulo, said.Traders disagree about whether the central bank will intervene to buy dollars on the spot market.

Dollar purchases would weaken the real to keep exports competitive and rebuild scant foreign reserves. But allowing the real to strengthen further would undercut inflationary pressures the central bank is trying to control.

(From Reuters, November 22, 2004)

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