Brazil currency rallies, stocks up in choppy trade

(Updates to close)

SAO PAULO, June 23 (Reuters) - Brazil's currency rallied on Tuesday and stocks edged higher in choppy trade, as investors bought back into markets that fell sharply in the previous session.

Brazil's Bovespa index .BVSP gained 0.64 percent to 49,813.58 points, after dipping in and out of positive territory all session and after falling more than 3 percent in the previous session. The index is in negative territory in June after rallying for three straight months, but it has gained more than 32 percent so far in 2009.

The real currency jumped 2.1 percent to 1.981 per dollar -- its biggest one-day rally in more than a month. The U.S. dollar fell against a basket of currencies on speculation the Federal Reserve may dampen expectations for interest-rate hikes this year when it concludes a two-day meeting on Wednesday.

"It's a movement that is coming more from the dollar in relation to emerging currencies," said Eduardo Cotrim, Treasury desk director at Banco Modal.

"There is some speculation that (the Fed) could signal that it will keep rates low for a longer period of time."

At the stock exchange, gains in commodity stocks and steelmakers offset lower financial shares.

Oil giant Petrobras (PETR4.SA) jumped 1.75 percent to 31.40 reais as oil prices rallied, while heavyweight miner Vale (VALE5.SA) also gained 0.87 percent to 30.19 reais as copper prices surged more than 2 percent.

Higher metal prices also boosted steelmakers, with Usiminas (USIM5.SA) up 2.11 percent at 38.15 reais, Gerdau (GGBR4.SA) up 3.88 percent at 19.79 reais and CSN (CSNA3.SA) up 2.64 percent at 42.75 reais.

A CSN official said earlier on Tuesday the company has hired 1,200 workers at its Volta Redonda plant following signs the market is recovering. Late last year, it cut 1,300 jobs as the global economic crisis cut into demand for steel.

The gains, however, were limited by losses in financial shares on underlying worries over the state of the world economy. U.S. data showing sales of previously owned U.S. homes rose less than expected in May, added to fears that the world's largest economy was managing only an anemic economic recovery from a deep recession.

Itau Unibanco (ITUB4.SA) shed 2.07 percent to 29.75 reais and Banco Bradesco (BBDC4.SA) fell 2.46 percent to 27.70 reais. Brazilian financial and commodities exchange operator BM&F Bovespa (BVMF3.SA) lost 1.47 percent to 10.75 reais.

Interest-rate futures <0#DIJ:> were broadly lower, with the central bank still widely expected to ease monetary policy further even if at a slower pace.

Last week, Brazil's central bank said it saw "residual leeway" for future interest-rate cuts in minutes from its rate-setting meeting earlier in the month, signaling it will reduce borrowing costs at a slower pace. (Reporting by Ana Nicolaci da Costa; Editing by Jan Paschal)