Brazil's stocks recover on China, real weaker

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SAO PAULO, June 11 (Reuters) - Brazilian stocks recovered from early losses on Friday as optimism over the strength of emerging market economies overshadowed disappointing U.S. retail sales data.

After falling as much as 1.1 percent in morning trading, Brazil's benchmark Bovespa stock index .BVSP closed 0.88 percent higher at 63,605.38.

Brazil's currency, the real BRBY, also wavered throughout the session and ended the day 0.3 percent weaker at 1.816 per dollar, as the greenback strengthened against a basket of major currencies .DXY.

A surprise drop in U.S. retail sales in May initially prompted investors to shy away from higher-risk assets and emerging markets such as Brazil [ID:nN11114277].

However, signs of booming growth in China, India and Brazil this week have reassured investors, said Roberto Padovani, chief Brazil strategist at WestLB in Sao Paulo.

"There was also no bad news out of Europe, which has allowed prices to recover," he added.

Brazil's stocks surged early in the week after data showed Latin America's largest economy grew at its fastest pace for over a decade in the first quarter.

A 50 percent jump in Chinese exports stoked risk appetite later in the week. And India added to the optimism on Friday, posting its fastest rate of manufacturing growth in 15 years. [ID:nSGE65A07G]

The rush of encouraging data from the world's developing countries helped to distract investors from concerns over the euro zone debt crisis, which has weighed heavily on equity markets worldwide over the past two months.

On Brazil's Bovespa index, shares in Vale (VALE5.SA) led gains, rising 1.07 percent to 41.66 reais. As the world's largest producer of iron ore, Vale has benefited from China's huge demand for raw materials.

Cosan (CSAN3.SA), the world's largest sugar and ethanol group, also supported the index, rising 0.73 percent to 20.80 reais. Cosan posted a fourth-quarter profit, reversing year-ago losses, as sales nearly doubled on surging sugar prices. [ID:nN11247535]

Banks also rose. Shares of Itau Unibanco (ITUB4.SA), Brazil's largest private sector bank, gained 1.48 percent to 34.91 reais, Bradesco (BBDC4.SA) closed up 1.01 percent to 30.15 reais and Banco do Brasil (BBAS3.SA), Latin America's largest bank by assets, rose 0.52 percent to 26.90 reais.

However, concerns over the pace of economic growth in the United States, the world's largest economy, caused oil prices to fall more than 2 percent on Friday, dragging down Petrobras shares (PETR4.SA). The state-controlled energy giant, the most heavily weighted stock in the index, lost 0.94 percent to 29.62 reais.

Two days after Brazil's central bank hiked borrowing costs, yields on interest rate futures contracts were broadly higher <0#DIJ:>.

The yield on the contract due January 2011 DIJF1 crept up to 11.16 percent from 11.1 percent on Thursday. The yield on the contract due January 2012 DIJF2 jumped to 12.15 percent from 12.02 percent. Both contracts were among the most active of the session.

Central bank policy-makers on Wednesday night took the country's benchmark interest rate, the Selic, to 10.25 percent from 9.5 percent, following on a hike of 75 basis points in April. [ID:nN09179023] (Reporting by Samantha Pearson; Editing by Diane Craft) (samantha.pearson@thomsonreuters.com; Reuters Messaging: samantha.pearson.thomsonreuters.com@reuters.net; +5511-5644-7736))