* Real tumbles to over 4-year low on Fed, China concerns
* Interest rate futures soar as weaker real seen fueling inflation
* Central bank intervenes with FX swaps, dollar sales on spot market
* Treasury repurchases local government debt to stabilize market
By Walter Brandimarte and Natalia Cacioli
RIO DE JANEIRO, June 20 (Reuters) - Brazil’s currency fell on Thursday and interest-rate futures soared for a second day, defying government efforts to stabilize both markets, as investors fret about a likely withdrawal of U.S. stimulus and an economic slowdown in China.
The real tumbled about 2 percent for two sessions in a row to hit an intraday low of 2.275 per dollar, its weakest level in more than four years, complicating government efforts to rein in inflation.
The currency rout deepened after U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday that the bank’s stimulus program, which for years has supported appetite for emerging-market assets, will likely be reduced later this year and finished by mid-2014.
A fall in Chinese factory activity to a nine-month low in June added to concerns that emerging-market countries will also suffer from lower demand and weaker prices for their commodities exports.
China is Brazil’s main market for some of its principal exports such as iron ore and soybeans.
“Markets are going through a panic moment. The central bank, within its possibilities, is doing its job (to calm down investors) but the sentiment is pretty bad,” said Glauber Romano, a trader at the Intercam brokerage in Sao Paulo.
Earlier on Thursday, Brazil’s central bank sold 30,000 traditional currency swap contracts due on September 2 and another 30,000 contracts maturing on October 1, in a strategy that emulates the sale of dollars in the futures market.
The contracts provide investors with a hedge, a kind of insurance, against further declines in the dollar. The intervention only briefly supported the real, however.
In early afternoon, the central bank returned to the market with an auction of as much as $3 billion directly on the spot market, in an attempt to provide temporary dollar liquidity to the system.
The bank said it intended to sell the greenbacks with repurchase agreement dates set for September 3 and October 1.
The rout in the currency market contributed to pushing interest-rate futures sharply higher on the BM&FBovespa exchange.
Investors fear that the sharp depreciation of the real, which has lost more than 10 percent since the beginning of May, will further stoke inflation by increasing the price of imported goods, forcing the central bank to increase its benchmark Selic interest rate more aggressively.
The spike in interest-rate futures came in spite of news that Brazil’s two biggest cities agreed to revoke an increase in public transportation fares following nationwide protests against poor public services.
Lower bus fares should reduce the benchmark IPCA inflation index by 0.1 percentage point, calculated Daniel Cunha, an economist with XP Investimentos in Sao Paulo.
The move seemed insufficient to ease concerns about the long-term inflation trends. Reports of heavy selling of domestic government bonds by foreigners also contributed to the increase in local interest rates, traders said.
In an attempt to stabilize the secondary market for domestic debt, the Brazilian Treasury conducted extraordinary auctions to repurchase government bonds for the second time this week, resorting to a strategy it had not used since 2008.
“After the Fed statement, we understand the market needs price parameters,” said a Treasury official who asked not to be named. “That is the reason for those extraordinary auctions.”
On Thursday, the Treasury bought back a little over 1 million LTN and NTN-F notes, fixed-rate debt instruments regularly sold by the government. It had initially offered to repurchase as much 4 million of such notes.