The landless movement does not see eye to eye with Lula's policies

The 2.5 percentage point fall - the third decrease in as many months, after rapid increases earlier this year - still leaves interest rates at 22%, high by developed country standards.

But it was the biggest cut in over four years, and follows calls by industrialists for prompt action.

The bank said inflation was coming under control, leaving it room to manoeuvre.

The decision boosted shares on Brazil's main stock market in Sao Paulo, where the Bovespa index rose to a 17-month high to finish 2.18% higher - although the currency, the real, ended 0.4% weaker at 3.002 reais to the US dollar.

Respite

The news came as the government got some much-needed relief in the shape of figures showing unemployment beginning to fall, to 12.8% from 13% in June.

President Luis Inacio Lula da Silva's swept to power last year promising a massive job creation programme, as well as anti-hunger initiatives.

Investors were pleased by the bank's decision

Recently he has faced criticism for his efforts to reform the pensions system, which allots much more generous payoffs to public sector workers than those their private sector colleagues can expect.

The reforms are part of a plan to rebalance the books, laden down as they are with more than $250bn in external debt.