The Central Bank spent more of its foreign reserves to bring the real back from 2.22 to the dollar to end the day at 2.17 -- still the currency's weakest-ever closing price. The once-strong currency is down 44 per cent since its collapse in mid-January.

Later the Central Bank announced it was increasing compulsory deposit requirements for banks, effectively squeezing cash out of the financial system to ease pressure on the real.

A government official said the decision to raise the proportion of deposits that banks must store with the Central Bank to 30 per cent by March 10 from 20 per cent now would drain as much as 6 billion reais from the market."They seem to be shutting off liquidity to get a grip on the real and stop inflation," an economist with a Sao Paulo bank said. "But volatility is going to bewith us for a while." Markets around the world are watching Brazil's every move as it tries to prevent the real from free-falling and keep a grip on inflation, which is making a comeback.

"We're playing with fire," said Augusto Lopez-Claros, an economist at Lehman Bros. in London. "If confidence doesn't return to Brazil following the approval of the IMF programme, there will be serious implications for the economies of the region and the whole continent." Brazil is hammering out new spending cuts with the International Monetary Fund to secure a new batch of rescue loans from a $41.5 billion package put together late last year.

Finance minister Pedro Malan said on Tuesday that Brazil would make extra savings equivalent to about 0.5 per cent of gross domestic product to compensate for higher debt costs after the devaluation. The additional belt-tightening comes on top of a previously announced savings target of 2.6 percent of GDP.

Brazil needs more IMF cash to bolster its foreign currency reserves,stabilise its currency and start bringing down interest rates of nearly 40 per cent a year, which have already thrown the economy into recession. The government's National Statistics Institute said on Tuesday unemployment hit 7.73 per cent in January, a record for the month.

Other figures showed that the Central Bank spent $275 million of its foreign currency reserves to defend the real last Thursday, much less than the $1 billion or more it was spending daily before the devaluation but up sharply from the combined $102 million for the previous two days. Traders said that despite the interventions, there were still not enough dollars on markets to meet the needs of Brazilian companies that are having to pay off foreign loans after borrowers refused to let them roll over their debts.

Arminio Fraga, a former aide of billionaire financier George Soros, was expected to be confirmed on Wednesday by the Senate as the new president of the Central Bank, allowing him to get on with the challenge of saving thereal.