Brazil stocks surge, real gains to Jan 1999 high

(Updates to close)

By Elzio Barreto

SAO PAULO, Brazil, May 16 (Reuters) - Brazil stocks surged to a record on Friday as mining company Vale, local steelmakers and state-controlled Petrobras took a boost from a commodity rally, while the national currency gained to its strongest level since January 1999.

The Bovespa index .BVSP of the Sao Paulo stock exchange jumped 1.78 percent to 72,766.93 points, passing a previous record set on Thursday. The index has gained nearly 14 percent in 2008 and broken successive records as investors bet a booming economic expansion in Brazil will boost corporate profits.

Steelmakers Usiminas, Gerdau and CSN were among the biggest gainers on Friday, surging more than 2 percent after the local industry association raised its sales forecast for the year.

The Brazilian real BRBY strengthened 0.79 percent to 1.642 per U.S. dollar, its highest level since closing at 1.58 on Jan. 20, 1999 less than a week after the government let it float freely against the dollar.

Brazil, which had a controlled foreign exchange rate regime for years, let the real trade freely against the dollar on Jan. 15.

The currency, which rallied 20 percent last year, has gained 8.22 percent in 2008. It may rally further, toward 1.6 per dollar as investors buy local securities ahead of an expected credit upgrade by Fitch Ratings, said Joao Medeiros, a partner at Brazil's biggest interbank currency brokerage Pioneer. Dollar inflows from exporters and foreign stock investors have also been strong, he said.

"I see nothing but upward pressure on the real. All you see are dollar inflows," said Medeiros. "Exporters have been selling an amazing volume of dollars. Inflows into stocks continue to charge ahead also."