Brazil markets brush off war jitters, end higher

Reuters, 03.28.03, 4:54 PM ET SAO PAULO, Brazil, March 28 (Reuters) - Brazil's financial markets closed higher on Friday, brushing aside war jitters amid signs the economy at home is withstanding the fallout to the U.S.-led conflict in Iraq. The country's currency, the real , strengthened to its highest point since mid-January to close at 3.361 per U.S. dollar, bolstered by a fresh flow of greenbacks into the market as an increasing number of companies raise debt abroad. Helped by the firming real and an uptick in prices for Brazilian bonds, the Sao Paulo Stock Exchange's benchmark Bovespa <.BVSP> index closed 1.45 percent higher at 11,396, leaving it 1.1 percent higher since the start of the year. "Brazil is showing foreign investors that it is going to pass structural reforms, and funds from abroad are flowing in," said Mauricio Gallego, a stock trader at Concordia brokerage in Sao Paulo. The gains came after the Central Bank said on Friday that the public sector posted a primary budget surplus of 7.6 billion reais ($2.3 billion) in February, putting the country on track to beat its first-quarter target agreed on with the International Monetary Fund. The primary surplus excludes debt servicing costs. The data was the latest in a slew of economic numbers showing that the new center-left government of President Luiz Inacio Lula da Silva is sticking to its promises of fiscal austerity, further boosting the administration's market credentials. "The positive surprise is that the fiscal performance of the Lula government is maintaining the fiscal performance of last year," said Marcelo Salomon, chief economist at ING Bank in Sao Paulo. Despite the good news on the fiscal front, investors remained on edge as the U.S.-led war in Iraq, now in its second week, showed few signs of abating any time soon. A prolonged conflict in Iraq could further trip up Brazil's slow-growing economy by choking off much-needed foreign investment. Citing war concerns, the Central Bank earlier this week slashed its forecast for foreign direct investment this year to $13 billion from $15 billion. Still, at least two banks managed to tap the growing confidence in Brazil on Friday. Banco Banespa <BESP4.SA>, the local arm of Spain's Santander Central Hispano <SAN.MC>, sold $125 million in nine-month notes, while Banco Votorantim began offering $50 million in 1-year eurobonds. It said it expects to close the deal next week. In stock action, shares for steelmaker Usiminas <USIM5.SA> rose 7.67 percent to 8.98 reais after reporting strong-than-expected fourth quarter earnings. Telesp Celular Participacoes <TSPP4.SA>, which accounts for 4.7 percent of the Bovespa index, closed 6.02 percent higher at 4.40 reais, making up nearly all of the ground it lost the past two days. Market bellwether Tele Norte Leste Participacoes <TNLP4.SA>, which accounts for 14 percent of the Bovespa, finished up 1.76 percent at 28.30 reais. In the mining sector, shares in iron-ore giant Companhia Vale do Rio Doce <VALE5.SA> slipped 0.79 percent to 88.20 reais in quiet trade. Earlier Friday, CVRD confirmed recent reports that it got the go-ahead from its shareholders to start talks to buy a 50 percent stake in its iron ore unit held by Japan's Mitsui & Co Ltd <8031.T>.