Brazil stocks rise on investor optimism; real up

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SAO PAULO, Oct 5 (Reuters) - Brazil's stocks rallied on Monday, extending the previous trading session's gains when Rio de Janeiro won the bid to host the 2016 Olympics.

Brazil's real (BRBY) also strengthened as investors piled into higher-yielding currencies.

Brazil's benchmark Bovespa index .BVSP added 1.96 percent to 62,369.30 points by Monday's end, also buoyed by gains on Wall Street.

U.S. stock indexes were up as data showed the critical services sector in the world's largest economy expanded for the first time since August 2008. The Dow Jones industrials .DJI closed up 1.18 percent.

The Bovespa rallied on Friday after Rio de Janeiro's winning Olympic bid boosted development prospects in Latin America's biggest economy.

The Brazilian real ended the day 0.96 percent stronger at 1.762 per U.S. dollar.

"It's the carry trade," said Dany Rappaport, a partner at InvestPort, a Sao Paulo-based asset management company. "It's international factors."

Because interest rates remain low throughout much of the world, investors are using the opportunity to borrow money at low cost and reinvest the funds in higher-yielding currencies.

That's particularly true in emerging markets such as Brazil, where a recovery appears to have taken hold.

"Brazil has been a preferred country for international capital inflows," Rappaport said.

State-controlled energy giant Petrobras (PETR4.SA) advanced 0.85 percent 34.45 reais. Crude oil futures CLc1 seesawed earlier in the day but settled 0.66 percent higher on a late-day rally, as U.S. equities rose and the dollar weakened against a basket of major currencies .DXY.

Mining company Vale (VALE5.SA), the world's largest producer of iron ore added 1.53 percent to 37.14 reais.

Deutsche Bank revised its price target on Vale on Monday, mainly in response to the bank's "more optimistic view on base, bulk and precious metals over the medium-term," it wrote in a report.

Petrobras and Vale are the two most heavily-weighted stocks in the index.

Steelmakers also gained on recovery hopes. Gerdau (GGBR4.SA) jumped 3.94 percent to 24.80 reais, Usiminas (USIM5.SA) added 1.51 percent to 47 reais and CSN (CSNA3.SA) gained 2.69 percent to 54.99 reais.