Brazil Real Strenghtens As China Pledges Support For Europe

--Real opens at 1.7141/dlr Vs BRL1.7185/dlr Tuesday
--China signals willingness to support Europe bailout
--Stronger euro, commodities also aid Brazilian real


SAO PAULO (Dow Jones)--The Brazilian real strengthened in early trading Wednesday as Chinese officials signaled their willingness to aid in European debt bailout efforts.

The real was trading at BRL1.7141 to the dollar early in the session, stronger against the Tuesday close of BRL1.7185, according to Tullett Prebon via FactSet.

"Chinese officials, including both the government and the central bank, have signaled their willingness to help Europe," said Daniel Rocha, an economist at Sao Paulo's Indusval bank. "This is helping not only Europe, but also commodities prices and emerging market currencies."

Rocha said Brazilian investors themselves were still somewhat guarded about the European debt crisis.

"Originally, everyone thought there would be an announcement of a Greek bailout package this week," said Rocha. "But it now seems more likely we will only hear something next week."

Longer-term, the Brazilian currency is likely to remain volatile because of the European problems. Said Luiz Fernando Figueiredo, manager of Sao Paulo's Maua-Sekular investment fund, "The problem is that the Europeans, at present, are simply administering a shot of adrenalin to Greece. When the effect wears off, the malady will return."

Figueiredo said he expects the European crisis "to come and go" throughout the rest of 2012.

A stronger euro Wednesday was "a positive sign" for the real, according to Rocha. Higher international commodities prices Wednesday were also a support.

Higher commodities prices bring in more export revenues for Brazilian companies.

On the domestic front, Brazil's government is due to announce a budget freeze later Wednesday. The freeze is an annual event, locking up federal funds early in the year in order to guarantee compliance with budget surplus targets. If government spending and revenues are on target, the government typically lifts the freeze in the second half of the year.

Rocha said investors are expecting a freeze on the order of BRL50 billion to BRL60 billion.

Traders said there were few inflows expected this week from overseas bond issues by Brazilian companies. A flurry of bond issues in January led to heavy inflows in January and February.

However, Rocha said more bond issues were possible in the next few weeks, a factor likely to lend medium-term strength to the Brazilian currency.