by Renato Andrade

Brazil’s real climbed to its highest level in more than six months, prompting the central bank to buy dollars in the foreign-exchange market for the first time since September.

The central bank bought the U.S. currency in an auction today to slow the real’s appreciation after it posted its biggest weekly rally in five months. The last time the bank stepped in to by the greenback was on Sept. 10.

“The central bank did the right thing,” said Francisco Carvalho, head of currency trading at Liquidez Corretora in Sao Paulo. “The central bank can’t let the currency rise as fast as it happened today. I think the market will keep testing the bank to see how much it plans to buy,” he added.

The currency strengthened after government reports boosted speculation the global economy is recovering and Citigroup Inc. increased its forecasts for stocks and the currency.

The real gained 2.4 percent to 2.0608 per U.S. dollar, the highest since Oct. 14. The currency has increased 5.5 percent since May 1, its biggest weekly gain since November. All major currencies rose against the U.S. dollar today.

In the U.S., payrolls shrank by the least since October last month as employers detected signs the worst of the recession had passed. U.S. Federal Reserve Chairman Ben S. Bernanke said the U.S. review of the banking industry’s health “should provide considerable comfort.”

“We are going through a rally,” said Mario Battistel, foreign-exchange manager at Fair Corretora de Cambio in Sao Paulo. “The U.S. report boosts confidence that the world’s biggest economy is rebounding.”

The central bank said the “improvement in liquidity” in the currency market allowed it to begin to accumulate foreign reserves.

‘Fight Against a Trend’

The bank bought the U.S. currency at a rate of 2.0785 reais each. It’s not looking to influence the exchange rate, according to a statement on the bank’s Web site.

“The central bank is trying to fight against a trend and this is a problem,” said Joao Medeiros, director of currency trading at Pioneer Corretora de Cambio in Sao Paulo. “It will be difficult to halt the strengthening trend.”

The real is the world’s second-best performing major currency in 2009, having gained 12.3 percent, after South Africa’s rand.

The Bovespa stock index has rallied 37 percent this year on speculation record low interest rates and global stimulus plans will help the economy rebound from its worst contraction in at least a decade. The index rose 2.7 percent today.

Bonds Rise

“Local equities, and the real, have benefited in recent weeks from the realization that the most extreme negative scenarios for the Brazilian economy in 2009 are now almost certainly too bearish,” Citigroup strategist Geoffrey Dennis wrote. “We expect the Brazilian economy to ‘outperform’ within the region coming out of the current economic downturn, allowing Brazil to lead the way in the next bull market.”

Brazil’s local currency bonds rose for a fourth day, pushing yields to a record low, after a government report showed inflation is moving toward the central bank’s target, opening room for further interest-rate cuts.

The yield on the nation’s zero-coupon bonds due January 2010 fell seven basis points, or 0.07 percentage point, to 9.56 percent, the lowest since the security started trading in October 2007.

Prices as measured by the benchmark IPCA index increased in the 12 months through April by 5.53 percent, down from 5.61 percent in March, the national statistics agency reported today.

“The outlook doesn’t have inflationary risks which gives room for another interest-rate cut,” said Zeina Latif, chief economist at ING Bank in Sao Paulo. She forecast policy makers will reduce borrowing costs by 50 basis points in June, to 9.75 percent.

The central bank reduced rates to a record low of 10.25 percent on April 29.