Brazil's stocks, currency rally after Fed rate cut

SAO PAULO Jan 22 (Reuters) - Brazil's stock market and currency rallied on Tuesday after a surprise U.S. Federal Reserve interest rate cut raised investor appetite for emerging market securities that had tumbled the previous session.

The Bovespa index .BVSP of the Sao Paulo Stock Exchange rose 2.14 percent to 54,859.71 points, after slumping 6.6 percent on Monday and closing at its weakest since Sept. 12.

Brazil's currency, the real BRL=BRBY, gained about 1 percent against the U.S. dollar to 1.806, after a 2.5 percent tumble on Monday.

The Fed slashed benchmark U.S. interest rates by a hefty three-quarters of a percentage point in a surprise move to try to avert a recession. The cut took the key federal funds rate, which governs overnight lending between banks, down to 3.5 percent, its lowest since September 2005.

Interest-rate futures <0#DIJ:> were mostly lower on the BM&F commodities and futures exchange in Sao Paulo, reflecting improved investor sentiment after the Fed cut.

On the stock market, state-controlled oil company Petrobras (PETR4.SA), Brazil's most actively traded stock, gained 3.57 percent to 68.85 reais. The company said late Monday it struck a big deposit of gas and condensate in the offshore Santos basin that could be as large as last year's giant Tupi oil find.

Vale (VALE5.SA), the iron ore miner formerly known as CVRD, rose 3.44 percent to 43.08 reais, recovering from an 11.3 percent tumble on Monday when it confirmed talks to buy rival Xstrata. The company said on Tuesday its management had approved a proposal to pay out $2.5 billion in dividends this year, a 33 percent increase over the amount it paid in 2007. (Reporting by Elzio Barreto; Editing by James Dalgleish)