Feb. 4 (Bloomberg) -- Brazil's currency may strengthen for a third day after Brazilian Finance Minister Antonio Palocci yesterday pledged to keep up a fight against inflation and take steps to help create an autonomous central bank.

Palocci's remarks ``ended the stress,'' said Carlos Eduardo de Andrade Jr., foreign exchange director at Banco Rendimento in Sao Paulo, in a Bloomberg News television interview. ``I don't see any reason for the real to weaken at this moment.''

Brazil's real fell 3.3 percent last week after the U.S. Federal Reserve suggested it may raise interest rates from four- decade lows sooner than some investors expected, threatening to slow investment into Brazil and other emerging markets. The real extended declines after Brazil's central bank said inflation concern led it to halt seven months of rate cuts a week earlier.

The currency yesterday gained 0.3 percent to 2.9205 reais per dollar, paring its decline in 2004 to 0.7 percent, the sixth- worst performance among the 16 most-traded currencies.

Palocci, speaking at a news conference in Brasilia, cited seasonal factors for the rise in consumer prices and said the government is studying ways to increase competition within industries to help tame inflation. He said he expects the bank will resume cutting interest rates to spur growth after holding the benchmark rate last month at 16.5 percent. The bank had cut its overnight rate from 26.5 percent in June.

The currency has also been helped by the bank's decision to slow purchases of dollars in the spot market, Miriam Tavares, executive director of AGK Corretora Ltda. in Sao Paulo, said in a Bloomberg New television interview yesterday. The bank, which started last month to buy dollars to boost its international reserves, hasn't bought dollars this week.

Brazil's 8 percent bond maturing in 2014 gained 0.25 cent on the dollar to 98.25, paring its yield to 8.45 percent, according to J.P. Morgan Chase & Co., at 6:32 a.m. New York time. The 11 percent bond maturing in 2040 gained 0.90 cent on the dollar to 110.00, paring the yield to 9.55 percent.

To contact the reporter on this story: Romina Nicaretta in Sao Paulo at at Rnicaretta@bloomberg.net

Last Updated: February 4, 2004 06:36 EST