Brazil stock market at record high

The market expects a further interest cut in December

Brazil's main stock index closed at a 35-year-high on Friday as it topped the psychologically significant 20,000 mark for the first time.

Investors in Latin America's largest stock market bet heavily on hopes for a hefty interest-rate cut next month.

The Sao Paulo Stock Exchange's benchmark Bovespa index rose 1.12 % to 20,183.9 points, its ninth straight week of gains.

The index has accumulated gains of 79% this year and an even bigger leap of 97% in the past 12 months.

Brazil's central bank this year has cut its benchmark interest rate by nine percentage points to 17.5 %.

'Positive momentum'

Analysts expect a further cut of up to one-and-a-half percentage points in December.

The cuts to the interest rates, still high by developed world standards, follow calls by industrialists for prompt action to revive the fragile economy.

The government, led by President Luis Inacio Lula da Silva since his stunning election victory last year, has confounded those who said his leftwing Workers Party would send investors running for the exits.

"You would think the market was ready for some profit taking, but the momentum is just so positive," said Eduardo Fornazier, a portfolio manager at Santos Asset Management in Sao Paulo.

"People are betting on another bullish month in December to finish out the year."

Balancing books

Friday's gains ended a grim week of economic news in which disappointing growth and unemployment figures underscored the sluggishness of the Brazilian economy.

On Wednesday the government published a third quarter growth figure of just 0.4% up from the previous quarter.

"It takes a while until the interest rate cuts trigger down. First, the capital goods industry is reacting and only then overall growth will pick up," said Hugo Penteado, chief economist at ABN Amro in Sao Paulo.

President da Silva swept to power promising a massive job creation programme, as well as anti-hunger initiatives.

Recently he has faced criticism for his efforts to reform the pensions system, which allots much more generous payoffs to public sector workers than those their private sector colleagues can expect.

The reforms are part of a plan to rebalance the books, laden down as they are with more than $250bn in external debt.