Brazil currency rallies, stocks up in choppy trade

(Updates to close)

SAO PAULO, June 23 (Reuters) - Brazil's currency rallied on Tuesday and stocks edged higher in choppy trade, as investors bought back into markets that fell sharply in the previous session.

Brazil's Bovespa index .BVSP gained 0.64 percent to 49,813.58 points, after dipping in and out of positive territory all session and after falling more than 3 percent in the previous session. The index is in negative territory in June after rallying for three straight months, but it has gained more than 32 percent so far in 2009.

The real currency jumped 2.1 percent to 1.981 per dollar -- its biggest one-day rally in more than a month. The U.S. dollar fell against a basket of currencies on speculation the Federal Reserve may dampen expectations for interest-rate hikes this year when it concludes a two-day meeting on Wednesday.

"It's a movement that is coming more from the dollar in relation to emerging currencies," said Eduardo Cotrim, Treasury desk director at Banco Modal.

"There is some speculation that (the Fed) could signal that it will keep rates low for a longer period of time."

At the stock exchange, gains in commodity stocks and steelmakers offset lower financial shares.

Oil giant Petrobras (PETR4.SA: Quote, Profile, Research) jumped 1.75 percent to 31.40 reais as oil prices rallied, while heavyweight miner Vale (VALE5.SA: Quote, Profile, Research) also gained 0.87 percent to 30.19 reais as copper prices surged more than 2 percent.

Higher metal prices also boosted steelmakers, with Usiminas (USIM5.SA: Quote, Profile, Research) up 2.11 percent at 38.15 reais, Gerdau (GGBR4.SA: Quote, Profile, Research) up 3.88 percent at 19.79 reais and CSN (CSNA3.SA: Quote, Profile, Research) up 2.64 percent at 42.75 reais.