Brazilian Real Gains the Most Since 2002 as Risk Aversion Eases

By Adriana Brasileiro

Oct. 9 (Bloomberg) -- Brazil's real strengthened the most since August 2002 as aversion to high-yielding assets eased amid a rebound in global equities and as the central bank drew on foreign reserves to support the currency.

The real rose 7.1 percent to 2.1790 per dollar at 10:10 a.m. New York time, from 2.3342 yesterday. The currency had lost 18 percent in the past six days as financial institutions around the world started to falter under the weight of the global credit crisis.

``Today is a day of relief because sentiment in global markets has improved,'' said Roberto Padovani, Banco WestLB do Brasil's chief economist in Sao Paulo. ``We are not safe from volatility yet; investors still lack parameters so we can have more rollercoaster days.''

Asian, European and U.S. stocks rose, with the Standard & Poor's 500 Index recovering from its worst six-day plunge since 1987. The S&P rose 0.8 percent, while MSCI World Index rose 0.9 percent and Brazil's benchmark Bovespa Index climbed 3.8 perent.

Brazil's central bank yesterday stepped up measures to stem the real's slide, the worst among all currencies in the past week, by drawing on its record $208 billion of international reserves to sell U.S. dollars for the first time in five years. The real yesterday lost as much as 9 percent and pared losses after the sale of U.S. currency in the spot market.

The bank yesterday sold dollars three times after having auctioned currency swap contracts several times since Sept. 19. It sold dollars again today.

Reserve Requirements

Monetary policy makers yesterday also eased rules on reserve requirements that banks must keep at the central bank for a third time in two weeks. The measures will add 23.2 billion reais ($10 billion) in cash to the financial system by Oct. 13, the bank said.

The yield on Brazil's overnight futures contract for January 2010 delivery fell for the first time in four days, sliding 17 basis points, or 0.17 percentage point, to 14.76 percent.

The yield on Brazil's zero-coupon bond due in January 2010 fell 10 basis points to 14.82 percent, according to Banco Votorantim.

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net