The real posted its largest daily gain on Friday in a decade after central bank chief Ilan Goldfajn said the bank could offer as much as $20 billion worth of new currency swaps, which function like dollar sales for future delivery, to provide liquidity and cushion the currency's selloff earlier last week.
The bank could also resort to other instruments, such as repo contracts or even dollar sales in the spot market, Goldfajn added.
"The bank cannot be predictable, otherwise it may end up setting up a floor and a ceiling for the currency, so that keeps the market on its toes," a manager at a S?o Paulo-based brokerage said.
Goldfajn's remarks helped to curb losses in the Brazilian real, which after weakening around 10 percent this year ranks as Latin America's second-worst performing currency.
For months, analysts and investors have warned that concerns over Brazil's fiscal outlook and this year's presidential elections have left the currency more vulnerable to sudden swings in demand for emerging market assets.
Those warnings proved to be well founded over the last few weeks as bets on accelerating US inflation, a widening US fiscal deficit, fears of a global trade war and geopolitical tensions drove worldwide risk aversion, leading many investors to start to unwind bets on emerging market assets.
The selloff gained further impetus on Monday after US President Donald Trump lashed out at Canada and Europe over the US trade deficit.
The Mexican peso, which has been dogged by fears that Trump may scrap the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, fell 0.6 percent, while most other Latin American currencies retreated slightly.
Yet the Brazilian real strengthened further, making it by far the best-performing currency in the region. A recent poll showing a rising number of undecided voters in October's elections, which some traders took as a sign that recent support for populist candidates may be fleeting, also helped allay investors' angst.
Brazil's benchmark Bovespa stock index rose 0.4 percent, with shares of electric appliance retailers B2W Cia Digital SA and Via Varejo SA among the largest gainers.
In a client note, analysts at Brasil Plural said analyst discussions with Via Varejo's management suggested a nationwide truckers' strike is unlikely to offset organic sales growth in recent quarters, while the company should also benefit from the World Cup soccer championship this month.