By Carla Mozee

Brazil's currency edged higher Thursday as traders took their cues from a government plan outlining spending cuts in a bid to hold down inflationary pressures.

The currency rose during the session to 1.767 reals per U.S. dollar, improving from Wednesday's finish at 1.773 reals. It recently traded at 1.770.

Trading was influenced in part by lingering concerns about debt problems in the euro zone.

Among exchange-traded funds, the iShares MSCI Brazil Index Fund (EWZ) rose 0.4%. The Bovespa equity index was up 9 points at 65,232 in a seesaw session.

The Brazilian government said it will reduce public-sector spending by roughly 10 billion reals ($5.64 billion) as it aims to rein in inflationary pressures, according to media reports Thursday.

After a contraction of 0.2% in 2009, Brazil's economy has been quickly expanding. Market professionals have largely pegged growth coming in at more than 6% this year.

Alongside growth, inflation and inflation expectations have been on the rise. The annual inflation rate in April was 5.26%, surpassing Brazil's inflation target of 4.5%.

Finance Minister Guido Mantega said the government will work to limit economic growth to no more than 7% this year.

"Fiscal tightening is rarely seen in Brazil during an election year, but it goes to show just how strong the economy is right now," wrote Win Thin, senior currency strategist at Brown Brothers Harriman, in a note Thursday.

Brazil, which will hold its presidential election in October, said in March that it would freeze nearly 22 billion reals in spending.

Late last month, the nation's central bank embarked on a new rate-tightening cycle by raising the key Selic rate to 9.5%. The Selic had stood at a historic low of 8.75% since July 2009.

In a weekly survey conducted by the central bank, analysts lifted their economic growth estimate to 6.26% for 2010, up from 6.06% in the previous week. They also, on average, expected the benchmark IPCA inflation index to end at 5.5% this year.

Elsewhere in Latin America, Chile's IPSA index slipped 3 points to 3,887, with trading checked ahead of the central bank's interest-rate decision due late Thursday. The iShares MSCI Chile Investable Market Index Fund (ECH) rose 0.3%.

Analysts polled by Dow Jones Newswires, on average, expect policy makers to hold the benchmark TPM rate at the record-low rate of 0.5%.

Chile continues to deal with the aftermath of a massive earthquake that hit Feb. 27. The government has estimated that the temblor created about $30 billion in damages.

The central bank said last week that a key index of economic activity dropped 2.8% in March from the year-ago period. Analysts polled by Dow Jones Newswires had expected a decrease of 2.5%.

Ahead of the rate announcement, shares of Banco de Chile (BCH) climbed 2.5% and Banco Santander Chile (SAN) rose 0.6%, but Corpbanca (BCA) shed 0.3%.

In Mexico, the IPC index rose 13 points to 32,292. Argentina's Merval lost 5 points to 2,334.