Reuters: US Dollar Report: UPDATE 1-Brazil again narrows reach of finance taxes, real gains

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UPDATE 1-Brazil again narrows reach of finance taxes, real gains Dec 5th 2012, 12:49 Wed Dec 5, 2012 7:49am EST SAO PAULO, Dec 5 (Reuters) - Brazil's government took another step which could support the country's currency, the real, on Wednesday as it reduced the scope of a financial transaction tax on foreign borrowing by domestic companies -- a move likely to facilitate dollar inflows to the country. Only foreign corporate loans of up to one year will keep paying the so-called IOF tax, which remains unchanged at 6 percent, according to a presidential decree published in the official gazette. Previously, the tax was levied on loans of up to two years. The move followed a decision on Tuesday to lift the same IOF tax from advance payments of up to five years received by exporters and a series of auctions of dollars and currency swaps on Monday. The real traded 0.5 percent stronger early in the day at 2.1053 per dollar. While traders discussed whether the measures signal that the government is defending a new floor for the real around the level of 2.1 per dollar, most economists agree the government aims to smooth out currency fluctuations at the end of the year, when tight dollar liquidity usually leaves the real susceptible to speculation bouts.

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