The IMF's Anne Krueger was well received in Brasilia

The $30bn agreement was due to expire at the end of this year, but the extension will give Brazil access to a $14bn standby loan next year.

Details were announced in Brasilia by Finance Minister Antonio Palocci and the IMF's number two, Anne Krueger.

Ms Kruger praised Brazilian President Luiz Inacio Lula da Silva, a former harsh critic of the IMF.

The deal will be signed next month, subject to approval by the IMF board.

It includes $8bn from the current loan which Brazil has not yet withdrawn, so that only $6bn of new money is being made available.

Mr Palocci said the government would continue to maintain its tough fiscal policies, including running a primary budget surplus of 4.25% of gross domestic product, as agreed with the IMF.

Warm words

Ms Krueger said the standby loan would be available to provide security for the Brazilian economy against external shocks, while the government completed the process of restoring confidence and the basis for sustainable growth.

She publicly congratulated President Lula on his first year in office, saying he had managed to contain inflation and regain investor confidence by applying rigorous fiscal and monetary policies.

Correspondents say her warm words come in stark contrast to past relations between the president and the IMF, which he once called the enemy of the people.

Before last year's presidential election, the IMF granted Brazil a $30bn loan to prevent the country defaulting on its foreign debt and to calm financial markets concerned about a Lula victory.

The loan was the biggest ever given by the organisation.