May 18, 2009 / 8:49 PM / 10 years ago

Brazil stocks, currency surge on capital inflows

(Updates to close)

SAO PAULO, May 18 (Reuters) - Brazilian shares closed on Monday at their highest level in almost two weeks and the currency rose as foreign investors flocked into Latin America’s biggest market to snap up stock bargains following last week’s price correction.

More than $7.7 billion of foreign money has entered the Brazilian stock market in the year through May 12, according to EPFR Global data. While helping bolster Brazil’s local equity market, the inflows have also propped up the real BRBY currency to its highest level in seven months.

“The strong inflows are evidence the global economy has already bottomed out,” said Mario Abelar Fernandes, a stock trader with Intrader in Sao Paulo. “They signal more risk-taking.”

The benchmark Bovespa index .BVSP rose 5.01 percent to 51,463.02 points, its highest level since May 6. The market may continue to rise this week as signaled by Bovespa futures <0#IND:>, which closed 4.8 percent higher at 51,800 points.

Monday’s increase was also the biggest intraday jump since May 4, when the index advanced 6.6 percent.

Shares in steelmakers Usiminas (USIM3.SA) and Gerdau SA (GGBR4.SA), the largest maker of steel in the Americas, each gained more than 8 percent. Mining giant Vale VALE5.SA, which has the second-biggest weighting in the Bovespa, surged 6.3 percent.

The real strengthened 1.56 percent to 2.076 reais to the dollar, extending its gain for the year to 10.2 percent.

“Investors are in love with the Brazilian story and they will continue betting on the country for sure,” said Pedro Tuesta, a Latin America strategist at 4Cast Inc in Washington. “Market prospects look promising there.”

As global capital markets begin to open and credit begins to ease, more Brazilian companies will tap overseas bond markets for debt refinancing and expansion, Tuesta said. About $3.6 billion in Brazilian international corporate bonds mature this year.

About $10 billion in bond and loan plans have been postponed, canceled or reworked by Brazilian companies and banks since the start of the financial crisis in mid-2007.

Shares in food makers Sadia SA SDIA4.SA and Perdigao SA PRGA3.SA also rose after local media reported the companies could announce a merger as early as Monday. Sadia and Perdigao began merger talks this year after Sadia posted heavy losses in 2008 due to wrong bets on currency derivatives.

Sadia jumped 2.94 percent to 4.55 reais and Perdigao added 1.4 percent to 36.30 reais.

Investor optimism was also fueled by a government report saying Brazil’s $1.3 trillion economy added 106,205 payroll jobs in April, the third consecutive month of gains in the indicator. Stocks also rose on the eve of the expiration of stock options on Monday, traders said.

Interest rate futures <0#DIJ:> fell amid optimism the central bank would cut the benchmark interest rate, known as the Selic, again next month. The yield on the contract that settles in January 2010, one of the most widely traded in Sao Paulo, fell 0.01 percentage point to 9.31 percent.

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