Brazil's markets hit record high

Brazil's stock market has reached the highest level in its 35-year history.

In early Wednesday trading the benchmark Bovespa hit the 20,000-point mark for the very first time since the index was created in 1968.

However, the market could not hold on to the gains, and it ended the day down 0.6% at 19,694.8.

The Brazilian stock market has risen 78% so far this year, largely thanks to investor confidence in President Lula da Silva.

He was elected on a populist left-wing platform, but then adopted a prudent fiscal policy to control inflation.

Recovery ahead

Prior to Mr da Silva's election, investors feared the worse for the economy and sold off both stocks and the real.

But investors have been surprised by Mr da Silva's tight monetary policies during his first 11 months in the job.

Lula has won the trust of investors

The rises come despite the latest official figures suggesting that 2003 will be the weakest year for the Brazilian economy since 1998.

Official figures showed Brazil's gross domestic product grew by 0.4% in the July to September period, compared with the previous quarter.

But compared with the same point last year, GDP has fallen by 1.5%.

"What matters most is that the economy is on track for a stronger recovery next year," Sergio Goldman, head of equity research at Brazilian bank Unibanco said.

Analysts predict Brazilian gross domestic product will grow by 3.5% in 2004.

Shoeshine

Da Silva, who as a youngster worked as a shoeshine boy, still has his work cut out though.

Brazil has the world's highest disparity between rich and poor, and some $260bn of overseas debt.

A democracy again only since 1985, unemployment also remains very high.

And while Da Silva has won friends on the main stock exchange in Sao Paulo, he could loose them in the poor neighbourhoods that elected him on the promise to create 10 million new jobs.

Balancing the wants and needs of the extremities of Brazilian society is a difficult task.