Brazil currency jumps after rate rise, stocks fall

SAO PAULO, July 24 (Reuters) - Brazil's currency jumped early on Thursday after the country's central bank raised interest rates by more than expected to curb inflation, pushing the stock market lower.

The real BRBY strengthened 0.57 percent to 1.576 per U.S. dollar, bouncing back to its strongest level in nine years. On Wednesday, the currency weakened 0.32 percent to 1.585 reais.

The benchmark Bovespa index .BVSP of the Sao Paulo Stock Exchange was down 0.69 percent at 59,008.62 points, moving toward a third straight session of losses.

On Wednesday, Brazil's central bank raised its benchmark interest rate by 75 basis points to 13 percent, lifting borrowing costs for the third time in four months. Most economists were expecting a smaller increase to 12.75 percent.

In a brief statement, the bank's monetary policy committee, known as Copom, said it opted for a steeper rate increase to push "inflation toward the target in a timely manner."

Interest rate futures <0#DIJ:> on the BM&F commodities and futures exchange in Sao Paulo were mostly higher across the board, with short-term contracts rising sharply as investors priced in the steeper rate hike.

The yield on the contract for January 2009 delivery moved up to 13.72 percent from 13.52 percent at Wednesday's close.

Higher interest rates tend to help strengthen the real, attracting foreign investors seeking bigger returns than those available in core markets like Europe and the United States, where rates are much lower.

At the stock exchange, shares of state-run oil giant Petrobras (PETR4.SA) slid 0.91 percent to 35.77 reais, while iron ore miner Vale (VALE5.SA), the second-heaviest weighted stock in the Bovespa index, fell 0.17 percent to 39.95 reais.

The central bank's decision on Wednesday prompted economists to forecast more monetary tightening in the near future, which could help curb inflation but could also slow Brazil's economic growth.

A separate report released early on Thursday showed inflation in Brazil slowed in the month to mid-July as a recent surge in food costs began to subside.

The benchmark IPCA consumer price index rose 0.63 percent in the month to mid-July, down from a 0.9 percent increase in the month to mid-June and below market expectations for a 0.67 percent increase.

Nevertheless, the IPCA index rose 6.3 percent in the 12 months to mid-July. The government has an annual inflation target of 4.5 percent with a tolerance band of 2 percentage points. (Reporting by Renato Andrade; Editing by Jonathan Oatis)