By Charles Newbery, Jonathan Roeder and Daniel Horch

BUENOS AIRES, MEXICO CITY and SAO PAULO, Nov 16 (MNI) - Brazil's forex traders remain cautious, with recent government moves and statements increasing expectations of more aggressive interventions in the currency market.

Treasury Secretary Arno Agustin, in an interview with the newspaper Estado de Sao Paulo published over the weekend, confirmed new measures for the currency market are on the way, and specifically confirmed two.

First, Agustin said "we will resume foreign issues in reais," as Market News International reported Oct. 9.

But he said since interest rates for real-denominated issues have risen since Treasury's last off-shore issue in June 2007, "we cannot place a large volume of bonds" so that the "macroeconomic effect" will be "small."

Second, Treasury will receive the ability to use its Sovereign Wealth Fund -- currently used to reduce the budget deficit -- to buy dollars on the spot market, adding firepower to the Central Bank's interventions.

Last week the Central Bank issued a new regulation, requiring companies and banks register all credit operations made abroad that are linked to derivative operations in Brazil, seen as a possible first step to regulating such operations, and their use for currency trades.

In addition, currency expert Emilio Garofolo has moved to the Central Bank from the Finance Ministry, increasing speculation of possible joint measures from the two branches.

Currency trader Miriam Tavares, of AGK Brokerage in Sao Paulo, said last week she believes new measures are already prepared, but will be announced only if the real threatens to break 1.70 to the dollar.

Finance Minister Guido Mantega last week said the real is 20% overvalued in relation to the euro, while the chief economist of the state-owned BNDES development bank said Brazil is "on the front lines of an international speculative bubble."

Doubts continue, however, as to the efficacy of any possible government control over the currency market, at least so long as the Central Bank keeps low inflation as its principal focus.

Meanwhile, leaders of the ruling coalition are expressing optimism Congress will approve the government's plan to develop the country's ultra-deepwater offshore petroleum reserves within a month.

In addition to increasing government control over the sector, the legislation includes a capitalization plan for Petrobras, in which the government will contribute petroleum reserves valued at approximately $25 billion and receive Petrobras shares in return.

The company will then offer minority investors the opportunity to increase their equity stakes, which could bring in over $15 billion.

Petrobras has said the equity offering may occur about 90 days after Congress approves the legislation, and these new reserves and equity will then be used to raise up to three times the value of the company's new petroleum reserves -- some $75 billion.

Markets in Sao Paulo, including the stock market and the commodities and futures exchange, will be closed Friday for a city holiday. Trading in other markets, such as currency, may continue in other cities, but volume is likely to be light.

GDP numbers for the third quarter this week will likely confirm that Mexico's economy is slowly recovering from its sharpest downturn in decades, while investors and economists will be analyzing the final version of the nation's 2010 budget.

INEGI, Mexico's national statistics agency, will report GDP Friday. The result is expected to be positive compared to the previous quarter, but still negative compared with the same quarter in 2008.

Alfredo Coutino, top economist for Latin America at Moody's Economy.com, said third quarter GDP "will confirm that the Mexican economy has left the recession behind and entered a recovery process."

Coutino predicted growth will be 1.5%, seasonally adjusted, and show a decline of about 6.5% against the same quarter last year. He said the result "will not generate euphoria in the market" because "the market also knows that the recovery is gong to be weak and it is going to be slow for the coming months."

Sergio Martin, top economist for Mexico at HSBC in Mexico City, forecast GDP growth of 2.8% in seasonally adjusted terms and a contraction of around 7.0% against the third quarter of 2008.

The economy contracted 10.3% in the second quarter compared to the previous three months, and 8.2% in the first quarter of 2009.

As of early Sunday, lawmakers had yet to vote on the spending portion of next year's budget, with a vote expected late Sunday night.

The powerful Institutional Revolutionary Party (PRI) during the weekend debate was pushing for greater funding for state governments, while it appeared President Felipe Calderon's proposal to cut spending by eliminating three federal agencies would not be approved.

Congress approved the income portion of the budget in late October, which allows the government to run a deficit of 0.75% of GDP next year and estimates Mexican crude will sell for an average of $59 a barrel.

Taxes on oil finance close to 40% of the federal budget, and ratings agencies Standard & Poor's and Fitch say Mexico should lessen this percentage if it hopes to maintain its credit rating of BBB+. Both agencies have a negative outlook on Mexico.

"In the end, I think that Standard & Poor's and Fitch are going to give us the benefit of the doubt for some time still, even if they keep their negative outlook," said HSBC's Martin.

Mexico's Bolsa stock index will be closed for a holiday on Monday.

A drought in Argentina's central farmlands is threatening to reduce soybean planting, a key source of tax revenue for keeping the national budget in surplus.

Forecasters have started to say farmers may not plant a record 19 million hectares as previously expected, which would cut potential production and exports.

Experts may revise downwards their estimates for planted area if rainfall fails to relieve areas hit by the drought, like parts of Buenos Aires, Cordoba, La Pampa and Santa Fe.

The Rosario Cereals Exchange will put out its weekly crop report Wednesday and the Agriculture Ministry will release its report Friday. These will provide insight into the state of the drought and its impact on soy planting.

The Rosario Cereals Exchange said last week that if rain falls in drought-hit fields over the next week or so it will maintain its forecast for the planting of 19 million hectares to soybeans.

It said 34% of the expected area for the crop was planted by Nov. 11, leaving a lot of area still to go during the September-January planting season.

Argentina is the world's third biggest producer of soybeans, exporting most of the crop as beans, oil or other derivatives because of low domestic consumption. The government charges a tax of about 33% on exports, making it a big source of revenue.

In the meantime, the government will continue to borrow from different branches to cover spending. The Economy Ministry said Friday it borrowed $47 million from the National Lottery with the issue of a one-year note.

The Senate this week is expected to start reviewing a lower house-approved bill allowing the government to reopen the 2005 debt swap, a key step for settling the country's foreign debt that remains in default. The government has said it wants to hold a $20 billion swap for defaulted debt as soon as possible.

The government Friday will report September economic activity as well as trade, industrial production and capacity utilization figures for October.