By Renato Andrade

Brazil’s real rose to the highest since October on speculation the nation’s economic recovery and this year’s rally in equities will lure investors.

The currency gained 1.4 percent to 1.9244 per dollar at 4:39 p.m. New York time, from 1.9518 yesterday, when most trade in Brazil had ended. The currency gained as much as 1.7 percent, the strongest since Oct. 1, before the central bank stepped into the local market and bought an unspecified amount of dollars for 1.9270 reais each.

“The market is bouncing on the recovery story,” said Alvise Marino, emerging markets analyst at IDEAglobal Inc. in New York, in a phone interview. The prospect of rising investment “is one of the key reasons why the real is so strong,” he said.

Brazilian industrial output rose for a fourth straight month in April, a government report said yesterday, as the economy starts to recover from its sharpest economic contraction on record. The Bovespa index has gained 44 percent this year.

The real has risen 27.2 percent since March 2, the biggest advance among the six most-traded Latin American currencies, spurred by a rally in commodities, the return of foreign investors to Brazil’s local markets and a weaker dollar.

“The central bank will keep its policy of purchasing dollars in the spot market, but it will not change the trend” of the real strengthening, said Francisco Carvalho, head of currency trading in Sao Paulo at Liquidez Corretora.

Both analysts said the weakness of the U.S. dollar also boosted the real. Russian President Dmitry Medvedev may discuss his proposal to create a new world currency when he meets counterparts from Brazil, India and China this month, Natalya Timakova, a spokeswoman for the president, told reporters by phone today.

Dollar Weakness

The Brazilian currency has climbed 20.3 percent so far this year, the biggest gain among the world’s 16 most-actively traded currencies tracked by Bloomberg.

“The trend is not only in the real, if you look at currencies in general you see the dollar is losing ground across the board,” said Marino.

Brazil’s central bank started to buy dollars in the spot market on May 8. Through May 22, it purchased $2.4 billion. The bank is set to release tomorrow an update of its actions in the local market.

‘Complaints From Exporters’

Luiz Roberto Monteiro, currency manager at Corretora Souza Barros in Sao Paulo, expects the pace of gains to slow this month, as political pressure mounts. In May, the currency advanced 11.2 percent, the strongest since April 2003.

“We already have some complaints from exporters and a stronger currency can hurt the trade balance,” he said. Brazil’s trade balance surplus declined to $2.6 billion in May from $3.7 billion in April, according to a report released yesterday by the country’s Trade Minister.

Brazilian local-currency bond yields declined for a third day, as economists forecast the country’s benchmark interest rate will be cut next week.

The yield on the nation’s zero-coupon bonds due January 2010 fell three basis points, or 0.03 percentage point, to 9.15 percent. Earlier it touched 9.08 percent, the lowest since the security started trading in October 2007.

Analysts forecast Brazil’s central bank will reduce the main interest rate to 9 percent by year-end, according to the median estimate in a weekly central bank survey published yesterday.

Policy makers have cut interest rates in all three monetary policy meetings this year, to a record low of 10.25 percent from 13.75 percent. The bank’s monetary policy committee will hold a meeting to set interest rates next week.