UPDATE 2-Brazil central bank chief warns of forex euphoria

* Meirelles warns against euphoria in currency market

* Real reverses early losses and gains, despite comment

* Brazil economy showing "very clear signs" of recovery (Recasts, adds data on dollar futures, analyst comments)

By Isabel Versiani and Elzio Barreto

BRASILIA/SAO PAULO, May 21 (Reuters) - Brazil's central bank President Henrique Meirelles warned on Thursday against exaggerated swings in asset prices and "excessive euphoria" in the foreign exchange market, but the remark was not enough to prevent the local currency from extending a recent rally.

The Brazilian real (BRBY: Quote, Profile, Research) initially weakened in the wake of Meirelles' comments but eventually reversed course and strengthened, propped up by a steady flow of dollars to the local market.

"Market participants, companies, in the past had significant losses because of excessive euphoria, because they bet on trends in an exaggerated way," Meirelles told reporters when questioned about dollar inflows to Brazil and recent gains in the currency.

The real was up 0.5 percent at 2.02 per dollar in afternoon trading, gaining for a fifth straight session.

Yields on interest rate futures contracts <0#DIJ:> rose after the comments, with the Jan. 2010 contract, among the most widely traded at the BM&F Bovespa, climbing to 9.30 percent from its 9.26 percent close on Wednesday.