Brazil is taking extraordinary steps to curb the upward climb of its currency, the real, with a tax on inward investment into Brazilian stocks and bonds.

The tax on capital inflows, which takes effect today, will take the form of a 2 per cent levy on foreign investment in the stock market and in fixed-income securities, such as government bonds.

Guido Mantega, Brazil's Finance Minister, said that the tax would not affect foreign direct investment into Brazil. "We will continue to encourage foreign investment. Our concern is with excessive speculative investments, short-term capital that would cause a bubble," he said.

Excitement over the resilience of Brazil's economy to the recession has encouraged a wave of "footloose capital" to find a home in Brazil's hot markets. The Bovespa index of Brazilian shares has risen by 79 per cent this year and the inflow of money has pushed up the value of the real by more than a third against the dollar.

Foreign investors have flocked to Brazil, chasing its abundant natural resources and major companies, such as Vale, the mining company, and Petrobras. The oil company's shares have risen by almost two thirds since January, boosted by rising oil prices and a clutch of multibillion-barrel oil discoveries offshore of Brazil.

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