(Adds central bank official comments, FDI figure and estimates)
By Alonso Soto
BRASILIA, April 25 Brazil's current account deficit narrowed in March after an improvement in the trade balance, but it was still the nation's second largest on record for that month, central bank data showed on Friday.
Latin America's largest economy posted a current account deficit of $6.248 billion last month, down from $7.445 billion in February. Analysts had expected a deficit of $6.450 billion in March, according to a Reuters poll.
Brazil's current account deficit has widened in recent years despite a depreciation of the local real currency, which was expected to cut imports and fuel exports. But continued robust demand for imports and low levels of domestic savings have kept the external accounts under pressure, analysts say.
A trade surplus of $112 million in March, coming after two straight months of deficits, eased some of the pressure on the country's current account. The trade surplus, however, was the smallest since 2001.
Brazil's trade balance has been hard hit by rising fuel imports and a drop in the price of iron ore and some other key exports. A sharp depreciation of Argentina's peso has also curbed Brazil's manufacturing exports to its neighbor.
The Brazilian current account deficit hit $6.838 billion in March 2013, a record for that month.
In the last 12 months through March, it was equivalent to 3.64 percent of gross domestic product, compared to the 2.98 percent posted in the same month last year.
The deficit will remain stable at around 3.6 percent of GDP this year in part due to the weaker real, Tulio Maciel, the central bank's chief of economic research, told reporters.
But loose monetary policy and price controls imposed by President Dilma Rousseff's leftist government in the last two years have curbed the real's impact on the balance of payments, analysts with Nomura said in a report published on Wednesday.
Brazilian officials say continued strong foreign direct investment (FDI) and foreign capital inflows into domestic debt and equities will mostly cover the current account deficit this year. The central bank is forecasting FDI of $63 billion and a current account deficit of $80 billion in 2014.
A growing aversion among international investors to riskier assets, particularly in emerging markets, had raised concerns that Brazil might see a drop-off in foreign capital inflows.
Markets expected Brazil's FDI would be $3.5 billion in March, but it hit $4.995 billion for the month.
"Strong levels of foreign direct investment shows that foreign investors remain confident about Brazil," Maciel said.
(Reporting by Alonso Soto; Editing by Paul Simao)