Brazil's stock market rebounded from its weakest level on Friday since April after the US Federal Reserve cut its discount rate in a bid to ease concerns over a credit crunch. The Bovespa index of the Sao Paulo stock exchange closed 1.13 percent higher at 48,558.76, after surging 3.3 percent early in the session.
On Thursday, it tumbled 2.58 percent and closed at its weakest level since April 13. On the stock market, iron ore giant CVRD, the second-heaviest stock in the index, rose 1.81 percent to 68.00 reais after base metal prices bounced back after heavy losses the previous session. Steelmaker Usiminas gained 4.65 percent to 98.90 reais, also benefiting from the improved outlook for metals prices.
State-controlled Oil Company Petrobras fell 1.28 percent to 46.40 reais. The company's Chief Executive Jose Sergio Gabrielli denied on Friday it was behind on submitting an investment plan for Bolivian gas fields. The real gained 3.45 percent to close at 2.024 per US dollar from 2.094 on Thursday. It was the biggest daily rise since May 2006.
The central bank did not hold an auction to buy dollars in the foreign exchange market for a fourth straight session as volatility in the markets grew. The bank had been buying dollars on a daily basis since last September to build up foreign reserves and indirectly prop up the currency.
The Fed on Friday cut its primary discount rate, which governs direct loans from the central bank to commercial banks, by 50 basis points to 5.75 percent, while maintaining the federal funds rate unchanged at 5.25 percent.
The move raised expectations the Fed may soon cut the benchmark lending rate, traders and investors said. The US central bank said it was "prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets."
"This was the main factor calming down the markets. Still, it's only a short-term fix, what can really work to cool down the markets is time," said Marcos Forgione, an analyst at the Hencorp Commcor brokerage. Interest rates futures on the BM&F futures exchange in Sao Paulo tumbled, reflecting the improved market sentiment.