Brazil stocks end Feb up 1.7 pct, real firms 4 pct

(Adds closing prices)

By Aluisio Alves and Reese Ewing

SAO PAULO Feb 26 (Reuters) - Brazilian stocks closed out February up 1.7 percent in volatile trade that has characterized the market in past weeks, while the local currency gained 4.1 percent against the dollar in the month.

Sao Paulo's Bovespa index .BVSP edged up 0.58 percent to close at 66,503.27 on Friday, after having gained for the first time in four days on Thursday.

Brazil's currency, the real BRBY, rallied to close up 1.3 percent to 1.807 per U.S. dollar on the last trading day of the month, while the greenback fell against a basket of major currencies .DXY.

Data showed the U.S. economy grew a touch more than expected in the fourth quarter, but a surprise big drop in sales of previously owned homes last month was evidence that trouble spots still remain. For more see [ID:nN26169261].

Worries over financial problems in Greece and the broader euro zone have also put investors on edge, especially as some major emerging markets such as China and Brazil have started to tighten the reins on liquidity.

"These factors are today the principal drags on the markets and nobody is very comfortable with the situation the way it is," said Felipe Casotti, director of equities at Maxima Asset Management.

Brazil's stock index rallied more than 80 percent last year but has given up some of those gains and is down about 3.7 percent so far in 2010. The real is still about 3.7 percent weaker against the dollar for the year.

On the stock market, gains in oil giant Petrobras (PETR4.SA), steelmakers and airlines offset losses in miner Vale (VALE5.SA) and some other stocks.

Petrobras gained 0.67 percent to 34.61 reais as oil prices rallied nearly 2 percent. CSN (CSNA3.SA) closed up 2 percent to 59.15 reais, Usiminas (USIM5.SA) surged 3 percent to 51.32 reais and Gerdau (GGBR4.SA) jumped 1.3 percent to 26.45.

Local airlines TAM (TAMM4.SA) and Gol (GOLL4.SA) rose 7.5 percent and 5.2 percent to 33.49 reais and 24.55 reais, respectively, on the strength of domestic market demand.

On the downside, heavyweight miner Vale lost 0.2 percent to 44.45 reais.

Fibria (FIBR3.SA) was the biggest weighted loser on the index, closed down 5.3 percent at 32.95 reais as its fourth-quarter results came below expectations.

The world's largest supplier of pulp to paper markers posted a net loss of 150 million reais ($81 million), compared with a proforma loss of 968 million reais a year earlier, but this was less than the 153 million reais net profit expected by analysts in a Reuters poll.

Brasil Foods (BRFS3.SA), which controls about a quarter of the world's trade in poultry, closed off 1.6 percent at 44.10 reais, before reporting that a sharp decline in its export sales over the year dragged down its financial results. [ID:nN26209485]

Interest rate futures <0#DIJ:> were broadly higher with the central bank increasingly expected to raise borrowing costs as soon as March.

Reinforcing that view, Central Bank President Henrique Meirelles said on Friday in Brasilia that the bank has to do what is necessary to keep the financial system and inflation stable. [ID:nN26167434] (Writing by Reese Ewing; Editing by David Gregorio)