WRAPUP 2-S&P upgrades Brazil, heralds new era of investment

By Elzio Barreto

SAO PAULO, April 30 (Reuters) - Brazil won a much coveted investment-grade credit rating for the first time on Wednesday, triggering a surge in local markets and heralding a new era of investment in one of the world's top emerging economies.

Standard & Poor's upgraded Brazil's credit rating one notch to "BBB-", praising its debt reduction efforts, prudent spending and growth prospects.

The upgrade of Brazil's sovereign credit rating one notch to "BBB-" fulfilled one of President Luiz Inacio Lula da Silva's most treasured goals for the country. S&P also became the first major credit ratings agency to give investment-grade status to Latin America's largest economy.

"Brazil entered the club of the most respected countries -- considered serious and with solid economies," Finance Minister Guido Mantega said at a news conference.

Analysts expect Brazil's stocks, bonds and currency to rise further in the weeks ahead as the upgrade increases the pool of potential investors who can buy the securities. Many pension funds and institutional investors are barred from putting money into non-investment grade securities.

"It is deserved. It certainly has a credit quality and has improved tremendously over the last two, three years," said Alberto Ramos, senior Latin America economist at Goldman Sachs in New York.

Brazil, which along with Russia, India and China, is one of the world's fastest-growing emerging market economies, has seen a surge in capital inflows as investors bet the country will benefit from low unemployment and a credit expansion. An agricultural and mining export powerhouse, Brazil has prospered in recent years amid booming global demand for commodities ranging from soybeans to iron ore.

UNEXPECTED TIMING

Although the upgrade was expected later this year, the announcement on the eve of the May Day holiday took many by surprise. Within seconds of the news, the Sao Paulo stock market's benchmark Bovespa .BVSP index shot upward and soon hit a record high, while Brazil's currency reversed two days of losses.

The Bovespa jumped 6.3 percent, its biggest gain since October 2002, while the real (BRBY) BRL= strengthened a whopping 2.5 percent against the dollar.

The upgrade for Brazil came against a backdrop of growing fears of a global slowdown driven by a possible U.S. economic recession.

Brazil's Central Bank President Henrique Meirelles said S&P's move underscored the economy's resilience amid global turmoil and would likely draw more investment flows into the country.

"It is certainly a very significant moment for Brazil because the investment-grade (rating) was earned in a moment of economic uncertainty and instability internationally," Meirelles told reporters.

Brazil's currency has gained almost 7 percent against the dollar so far in 2008, adding to a 20-percent rise last year.

The real may strengthen further toward the 1.55 mark from 1.663 on Wednesday as investors pour more greenbacks into local bonds and stocks, said Daniel Tenengauzer, head of global currency strategy at Merrill Lynch in New York.