Finance minister Pedro Malan said the government would borrow $10bn from an International Monetary Fund (IMF) to boost the reserves of its central bank.

The value of the Brazilian real against major currencies has slumped in recent days, along with the country's stock market.

Brazil's rating on The JP Morgan index, which measures how risky it is to invest in a given country, rose to levels last seen just before neighboring Argentina collapsed late last year.

Public spending cuts

The government said it also planned to ask the IMF to allow it to spend more of $28bn in foreign currency reserves to support the real.

The central bank will also spend $3bn to buy back some of the country's international debt that is due next year and in 2004.

The government plans to withhold up to $2bn in public spending, while continuing to clamp down on regional government spending.

Following the announcement, the real recovered in mid-afternoon trading in Brazil to 2.64 to the dollar, while the main Bovespa stock index also climbed 1%.

The international financial markets have been jittery about Brazil's prospects as the country moves towards elections in October.

Central Bank head Arminio Fraga, warned the mood was likely to remain gloomy unless the opposition, leftist Workers' Party, whose presidential candidate Luiz Inacio Lula da Silva is way out front in opinion polls, convinced markets it would not pull Brazil off the road of fiscal discipline and low inflation.