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Brazilian Finance Minister Guido MantegaEraldo Peres

The world is in an "international currency war" as governments manipulate their currencies' value to improve their export competitiveness, Brazilian Finance Minister Guido Mantega said on Monday.

Mr. Mantega's speech to a meeting of Brazilian industrial leaders included some of the strongest comments to date by any world leader on the recent bout of currency intervention by countries including Japan and China.

The comments could signal the Brazilian government's frustration after foreign exchange markets largely shrugged off its vow last week to use its sovereign wealth fund to weaken the real. The real remains near its 10-month high at about 1.71 per U.S. dollar and is the world's most overvalued major currency, according to Goldman Sachs.

"We're in the midst of an international currency war," Mr. Mantega said. "This threatens us because it takes away our competitiveness."

"The advanced countries are seeking to devalue their currencies," he said, mentioning the United States, Europe and Japan in the context of what he portrayed as an intensifying trade competition.

Mr. Mantega has repeatedly tried to talk down the real in recent months with progressively more bellicose comments, but the government has been reluctant to follow through with concrete measures.

Last week's share offering by state-oil company Petrobras has contributed to a massive inflow of dollars to Brazil, which is attractive to foreign investors because of high interest rates and its booming economic growth at a time when most developed economies are struggling.

Yet the sovereign wealth fund has not announced any purchases of dollars on the spot market since the government said it was available to do so last week.

Meanwhile, investors have essentially dared the Brazilian officials to turn words into action by continuing to bid up the currency near the 1.70 per dollar level, which is perceived to be the government's unofficial breaking point.

Mr. Mantega said the country still has an "arsenal" of tools available to weaken the real, although he did not offer further details. He said the government was not considering additional taxes on foreign investments, but noted that the government has imposed such controls to hold back the real in the past.

The remarks could be a sign that Brazil's government will beef up efforts to weaken its own currency, said Raphael Martello, an analyst with Tendencias consultancy in Sao Paulo.

"He could be preparing the way for a stronger intervention. Since Japan intervened in the currency market, it gave other countries a justification to do the same thing: 'If they're doing it, well then we can too'. It makes it more legitimate," Mr. Martello said.

Currency interventions will likely be an issue when financial ministers and central bank governors meet for fall meetings at the International Monetary Fund in Washington, D.C., Oct. 8-10.

Strain over interventions has become especially evident among the world's three biggest economies: the United States, China and Japan.

With some economies still reeling from the global financial crisis, countries have sought to weaken their currencies, which Could boost exports and, thus, trade balances.

Japanese authorities intervened to sell yen on Sept. 15, the first such intervention since March 2004.

And the United States has vowed to rally global heavyweights on China's currency, the yuan, which many economists say is undervalued.

In Brazil, the central bank has stepped up its interventions in the foreign exchange market, holding two auctions on the spot market per day even as rumours swirl of the possibility of reverse currency swaps, a derivative that would allow the bank to intervene in the futures market.

Brazil's real has especially strengthened recently as a massive share offering from Petrobras has drawn waves of money.

State-controlled oil company Petrobras last week raised $70-billion in the world's largest-ever share offering. While many of those shares went to the government, the sale was credited with boosting inflows for the month - $11.135-billion through Sept. 17 this month.

The central bank bought $5.059-billion in the spot market in one week alone this month.

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