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SAO PAULO, May 19 (Reuters) - Brazil's currency closed at its highest level against the dollar in more than seven months on Tuesday, boosted by growing investment inflows on optimism about a rebound in Latin America's largest economy.

The Sao Paulo stock market ended slightly lower after a choppy day's trading, dragged down near the close by a retreat in U.S. stocks.

The real (BRBY: Quote, Profile, Research) surged 2 percent to 2.035 reais to the dollar, its strongest level since Oct. 2, 2008, when it closed at 2.021 reais. Tuesday's intraday gain was the highest since May 4, when the real advanced 2.3 percent.

The real has jumped 14.5 percent against the dollar since the start of the year as global investors, optimistic that the Brazilian economy will rebound sooner than previously expected, flock into the nation's bonds and stocks.

"The flow is returning and the investors as well. This made the dollar fall," said Paulo Shiguemi Fujisaki, an analyst at the Socopa brokerage, who said the real likely had further to rise. The dollar fell about 0.6 percent against a broader index of currencies .DXY.

The real's rise came despite a central bank auction to buy dollars on the spot foreign market, seeking to soak up the flow of greenbacks.

The stock market's benchmark Bovespa index .BVSP ended down 0.23 percent at 51,346.61 points.

It was pulled down partly by heavy losses in Perdigao (PRGA3.SA: Quote, Profile, Research) and Sadia (SDIA4.SA: Quote, Profile, Research), after the former agreed to buy the latter, joining the country's two biggest poultry and pork processors. For details, see [ID:nN19403312]