The Bovespa stock index set historic closing and intraday highs on Friday, with Brazil's risk premium trading at an eight-year low and domestic interest rate cuts spurring hopes of faster growth in South America's largest economy.
The rally meant Brazil joined Mexico and Argentina, where stock market records were broken this week as tame US inflation staves off worries that aggressive US rate rises that could lure money away from emerging markets.
The benchmark index of the Sao Paulo Stock Exchange gained 1.53 percent to finish at 29,815.8 points. It also set a historic intraday peak at 29,863.42, topping record highs set in March. "Scenarios for the domestic and international economies are positive and US rate hikes should continue to be very gradual," said Andre Querne, a fund manager at Maxima Asset Management in Rio de Janeiro.
As the US Federal Reserve hikes rates slowly, on Wednesday Brazil's central bank trimmed its benchmark rate to 19.5 percent a year. It was the first cut in 17 months and tame inflation makes it likely more will follow.
"Now that the easing cycle has started, the consensus is that we're going to get successive rate cuts, which is a good sign," said Ademir Carvalho, an equities trader at Finabank.
Demand for Brazilian assets is strong, despite a government bribes scandal that has hobbled President Luiz Inacio Lula da Silva's administration since June. J.P. Morgan's country risk premium, which measures the interest rate penalty Brazil must pay to sell bonds globally, fell slightly to 3.63 percentage points. Changes in the premium often drive the direction of stocks. CVRD, the world's leading producer and exporter of iron ore. led stocks higher for a second straight day after it offered to buy Canadian mining group Canico Resource Corp for $669 million. CVRD shares rose 4.8 percent to 79.96 reais.
In the foreign exchange market, the Brazilian real currency dipped 0.09 percent to end at 2.299 to the US dollar.
On Thursday, the real rallied nearly 1.4 percent, boosted by heavy inflows of greenbacks from exports and corporate bond sales as well as news the Treasury is planning to launch its first-ever global bond denominated in reais.
But with the real trading close to a 40-month high, currency traders warned that the likelihood the central bank could intervene in the market was growing, limiting potential gains.