UPDATE 1-Mantega: Brazil debt safe alternative to Treasuries

NEW YORK, March 16 (Reuters) - Brazil has room to implement greater fiscal stimulus and is well positioned to withstand the global financial crisis, making its sovereign debt an attractive alternative to U.S. Treasury bonds, Finance Minister Guido Mantega said on Monday.

The comments were in line with investors' suspicion that Brazil may soon relax its target for a primary budget surplus in order to help fend off a considerable economic contraction expected this year.

"We still have plenty of ammunition," Mantega said in a panel of officials and executives at a conference sponsored by the Wall Street Journal and Valor Economico.

He noted that Brazil could still resort to both fiscal spending and further monetary easing. "The fact that Brazil is now a net creditor gives us an advantage," he said.

Morgan Stanley said on Monday it now sees the Brazilian economy shrinking as much as 4.5 percent in 2009.

SOUTHERN COMFORT

Mantega noted that Chinese officials had recently expressed concern over the credit-worthiness of the United States, given that China is the biggest foreign owner of U.S. Treasuries, holding more than $700 billion.

While he affirmed that he saw no reason to worry about the soundness of the U.S. Treasury's finances, he also said: "If there is anyone worried about investing in Treasuries, there is a safe, higher-yielding alternative -- Brazilian bonds."

Mantega said it was important that countries like the United States, where the financial turmoil began, move quickly to deal with the problem of toxic assets on bank balance sheets. Until they do, world economic growth is likely to remain under pressure.

"We must deal rapidly with the fragility of the banks," Mantega said.

According to Mantega, many of the factors that have left the U.S. vulnerable do not exist in Brazil. He said housing debt was at much lower and more manageable levels, as was the leverage of financial institutions.

Speaking before him, central bank president Henrique Meirelles argued that a relatively stringent regulatory structure, including higher capital requirements, has given Brazil a better underpinning to fight the crisis.

Dilma Rousseff, the chief of staff for President Luiz Inacio Lula da Silva who is seen as his possible successor, said she was already seeing signs that growth was resuming after a sharp slowdown in the last quarter of 2008.

"All the signs point to growth recovering in the second quarter and in the second half of the year," Rousseff said in a separate panel.