Brazil's currency eases early, stocks gain

Brazil's currency eased in early trade on Thursday after hitting its strongest level of the year in the previous session, while stocks added to historic gains as global oil prices slipped.

The local currency, the real, weakened 0.37 percent early to 2.721 reais per U.S. dollar after finishing the previous session at its best level since June 19, 2002.

"There is a little bit of pressure on the real because people think the European Central Bank will say something to limit the euro's gains against the dollar," Davi Azevedo, a currency trader at the Treviso brokerage in Sao Paulo, said.

ECB President Jean-Claude Trichet is speaking on Thursday. Traders in Brazil are waiting for signs of a potential intervention scheme.The main Bovespa index of the Sao Paulo Stock Exchange rose 0.15 percent to 25,273 points, extending gains that put it at its highest level ever on Wednesday.

Bellwether Tele Norte Leste Participacoes was 0.36 percent higher at 42.10 reais.Oil prices retreated to their lowest levels since September, alleviating fears high petroleum costs would crimp global growth.

The currency and stocks rose in the previous session as Brazil's country risk rating, defined as the difference between yields on the country's sovereign bonds and U.S. Treasuries, fell to its lowest level since October 1997, when the Asia crisis rattled global markets.

Falling country risk suggests foreign investors are increasingly betting on Brazil, along with other emerging markets, as the U.S. dollar tests new lows.Though traders warned that profit taking could start to take effect, markets have a very positive tone. Good news, like a rash of overseas bond sales, an improving current account surplus and a strong outlook for economic growth are undergirding buying.

So far, markets have chosen to ignore bad news. On Wednesday, the monthly trade result for November showed imports hit an all-time high of $6.08 billion as a stronger real makes foreign made goods more affordable. If this trend continues, Brazil could see its trade surplus shrink.

Some key government officials, like Trade Minister Luiz Furlan, have said the real should be weakened to around three per dollar to keep exports competitive.

The central bank last week said the Treasury would gradually make $3 billion in purchases on the spot market through June, but traders said the effort will only stem pronounced appreciation of the real.

"So far the central bank isn't acting heavily to buy dollars, they are going to wait until January. By then, inflation will be more under control, thanks in part to a strong real," Azevedo said.

(From Reuters, Dezembro 02, 2004)

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