Brazilian Real Heads For Biggest Weekly Increase In Nine Years

By Adriana Brasileiro

Oct. 31 (Bloomberg) -- Brazil's real headed for its biggest weekly gain in nine years as the central bank stepped up efforts to shore up the currency and investor aversion to emerging- market assets eased.

The real traded at 2.1060 per U.S. dollar at 8:24 a.m. in New York, from 2.1050 yesterday. It has gained 9.75 percent so far this week, the biggest increase since the currency surged 12 percent in February 1999. The real is down 26 percent from a nine-year high of 1.5545per dollar reached on Aug. 1.

``We seem to have left the intensive care unit this week,'' said Reginaldo Galhardo, currency trading manager at Treviso Corretora de Cambio in Sao Paulo. ``Volatility will remain high through the end of the year and the real still lacks clear trading parameters.''

Brazil's central bank has been offering currency swaps daily to add liquidity to the local currency market and bought reais through repurchase agreements. The Federal Reserve agreed on Oct. 30 to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time.

Banco Central do Brasil has also announced measures to unlock credit markets, such as imposing a limit of 30 percent on the amount of time-deposit reserves banks can use to buy government bonds. The move is aimed at boosting purchases of loan portfolios from faltering lenders. The government also freed more funds for farm lending.

The yield on Brazil's zero-coupon bond due in January 2010 rose 24 basis points, or 0.24 percentage point, today to 15.89 percent, according to Banco Votorantim.

The yield on Brazil's overnight futures contract for January 2009 delivery fell 22 basis points to 13.81 percent.

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