September 22, 2009 / 8:04 PM / 10 years ago

UPDATE 2-Moody's upgrades Brazil, praises crisis resilience

* Moody’s raises Brazil ratings one notch to Baa3

* Moody’s praises Brazil economic, financial resilience

* Brazil rating put on par with Romania, El Salvador (Recasts, adds investor comment, bond, stock performance)

By Elzio Barreto

SAO PAULO, Sept 22 (Reuters) - Moody’s Investors Service raised Brazil’s sovereign debt ratings to investment grade on Tuesday and indicated the rating could be raised again, as it cited the resilience of Latin America’s largest economy to the global financial crisis.

Moody’s raised Brazil one notch to Baa3, the lowest investment grade, and put it on positive watch, meaning it could raise the rating further. Moody’s is the third and last of the major ratings agencies to give Brazil an investment grade seal of approval.

“The surprising note to all this is that Moody’s put Brazil on a positive outlook, which underscores the strength of the economy under President Lula,” said Claudia Calich, who manages $600 million in emerging market debt for Invesco in New York. as the United States.

Brazil's 11 percent coupon bond due 2040 BRAGLB40=RR rose 0.25 to 134.5 shortly after the upgrade, pushing its yield down to 4.308 percent. The country's benchmark Bovespa stock index .BVSP closed 0.9 percent higher.

Brazil’s currency, the real BRBY ,gained 1 percent on Tuesday to a one-year high of 1.799 reais per U.S. dollar.

“Evidence of strong economic and financial resilience...can be seen in the modest and short-lived contraction in GDP, minimal weakening in the country’s international reserve position, moderate deterioration in the government debt indicators and lack of financial stress in the banking system,” said Mauro Leos, Moody’s regional credit officer for Latin America, in a statement.

The upgrade put Brazil’s ratings on par with El Salvador, Romania, Bulgaria and Croatia, also rated Baa3 by Moody’s.

Moody’s had put Brazil’s foreign and local currency credit ratings on review for possible upgrade in July, citing the country’s resilience to the shocks created by the global financial turmoil.

Brazil’s gross domestic product grew a better-than-expected 1.9 percent in the second quarter of the year, figures released this month showed, as the country closed the door on a short-lived recession under the government of President Luiz Inacio Lula da Silva.

The stronger-than-expected expansion signaled economic health yet to be matched among more developed countries, such as the United States.

The upgrade by Moody’s may help Brazilian bond prices as it increases the pool of potential investors who can buy the debt under fund management covenants. Still, the impact could be limited as the country already holds an investment grade by two other major credit rating agencies.

Standard & Poor’s and Fitch Ratings have Brazil rated “BBB-minus,” the lowest investment grade. (Additional reporting by Guillermo Parra-Bernal; editing by Stuart Grudgings and Leslie Adler)

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