The Brazilian real has closed at a record low against the dollar after the country's central bank announced a surprise cut in interest rates.

One dollar was worth 2.897 real late at the close of trading on Wednesday, compared with 2.873 real twenty-four hours earlier.

The Brazilian currency touched an all-time low of 2.94 to the dollar on 2 July.

The real's latest decline came after the Brazilian Central Bank cut interest rates by half a percentage point to 18% in a bid to kick-start the country's faltering economy.

Debt worries

The currency's weakness is sure to trigger fresh concerns over Brazil's $250bn debt burden.

A decline in the value of the real increases the cost of servicing Brazil's dollar-denominated debts.

A weaker real will also make imported goods more expensive, fuelling inflationary pressures.

The currency has lost 20% of its value so far this year amid worries over the consequences for the economy if, as many believe likely, left-wing presidential candidate Luiz Inacio Lula da Silva wins general elections pencilled in for October.

Financial markets are worried that Mr da Silva may adopt populist policies which would pile further pressure on Brazil's shaky finances.

Brazil has been hit by waning investor confidence in emerging markets in the wake of Argentina's economic crisis.

Official figures show that the country's economy shrank by 0.73% during the first three months of the year.