Brazil stepped further back from the brink of financial crisis yesterday as investors began pricing in a new accord with the International Monetary Fund (IMF).

The currency rallied for the second consecutive day, gaining nearly 2 per cent against the dollar by early afternoon. The real has now recovered most of the losses it sustained early in the week as a credit crunch from international lenders fuelled corporate demand for dollars.

The recovery bolstered confidence, albeit temporarily, and helped contain fears that market panic could spread.

US Treasury Secretary Mr Paul O'Neill helped to seal the about-turn in market perceptions of a likely bail-out by distancing himself from earlier comments about Brazil.

Having previously appeared to place the country in the same bracket as Argentina, which needs to undertake tough reforms to have existing IMF loans rolled over, Washington has come round to the view that Brazil is mainly the victim of shortlived political disruption.

"The economic team in Brazil has done a remarkable job of maintaining sound fiscal and monetary policies," he said. - (Financial Times Service)