UPDATE 2-Brazil April current account widens, FDI jumps

(Recasts, adds economist comment, byline, changes dateline, previous BRASILIA)

By Elzio Barreto

SAO PAULO, June 26 (Reuters) - Brazil's current account surplus reached a record for the month of April as foreign investors flocked to the country's bond and equity markets and poured more cash into machinery and factories, government data showed on Tuesday.

The surplus BRCURA=ECI rose to $1.82 billion in April from $91 million a year earlier and $817 million in March. It was higher than the $1.5 billion median forecast of 21 economists in a Reuters poll, in which the forecasts ranged from $1.2 billion to $2 billion.

Foreign investment in Brazil, Latin America's largest economy, has grown as the country expands at a faster pace and companies ramp up production to meet rising demand for cars, television sets and other goods. Inflows to Brazilian stocks and bonds also have risen as overseas investors sought high-yield securities.

"The figures were very good," said Jose Carlos de Faria, chief economist for Brazil at Deutsche Bank. "The balance of payment indicators show capital inflows are very strong."

Brazil had net foreign investment inflows in local stocks and bonds of $5.52 billion in April, reversing net outflows of $5.29 billion in April of 2006.

From January through April this year, portfolio investments reached $14.48 billion, more than $9.05 billion in all of 2006.

Brazil's currency, the real (BRBY), has gained nearly 10 percent so far in 2007 as exporters bring more dollars into the country and investors pour money into stocks and bonds.

In May, banks in Brazil nearly doubled from April their bets the real will gain against the U.S. dollar, the central bank said. Banks had short dollar positions of $13.15 billion on May 25, compared with $7.52 billion at the end of April.

A short position on the dollar is a bet the dollar will weaken.

Net dollar inflows to Brazil reached $7.11 billion from May 1 to May 25, said Altamir Lopes, head of economic research at the central bank.

FOREIGN INVESTMENT

Foreign direct investment rose to $3.47 billion in April, up from $2.78 billion in March and $790 million in April 2006. It was higher than the $2.2 billion median estimate of 16 analysts in the survey.

Foreign investment is forecast to fall to about $500 million in May and the monthly current account balance may drop to near zero because of the decline, Lopes said.

Despite this, the central bank raised its annual forecasts for foreign investment and the current account balance in 2007.

It expects the current account surplus to rise to $10.7 billion from a previous estimate of $7.7 billion and foreign investment of $25 billion, compared with $20 billion before.

"There is a lot of optimism in the economy," Deutsche's de Faria said. "Interest rates are falling, but are still high and bring inflows to bonds. Faster growth in the economy brings more funds to the stock market and also attracts foreign direct investment" to plants and machinery.

In the 12 months through April, the current account surplus was equivalent to 1.37 percent of gross domestic product, compared with 1.23 percent in the 12 months through March.

The current account indicators gauge the net flow of external transactions, including foreign trade, interest payments, and services like tourism. It is seen as a measure of a country's reliance on foreign capital.

For details on Brazil's March current account figures, please go to: www.bcb.gov.br/?ECOIMPEXT (Additional reporting by Isabel Versiani in Brasilia)