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Brazil's Finance Minister Guido MantegaPAULO WHITAKER/Reuters

Brazil's Finance Minister, Guido Mantega, warned the U.S. against embarking on further quantitative easing and vowed to continue fighting the "currency war" as he blamed the weak dollar for crippling local industrial growth in the second quarter.

Gross domestic product growth in Latin America's biggest economy slowed to 0.8 per cent from 1.2 per cent in the first quarter, dragged down by a poor performance in the industrial sector, which only expanded 0.2 per cent, the national statistics agency IBGE said on Friday.

"Part of Brazil's growth is leaking overseas," said Mr. Mantega, blaming weak production on the sharp appreciation of the real against the dollar, making exports less competitive and flooding the country with cheap imports.

If the Federal Reserve decides to pump more money into the stagnant U.S. economy via a third round of quantitative easing, Brazil's factories and economy will suffer even more, he said.

"QE3 would mean a continuation of the devaluation of the dollar and too much internal liquidity, which will probably lead to appreciation of the real and a continuation of the currency war," he told reporters after the release of the GDP data. "Unfortunately, monetary policy seems to be the only weapon the U.S. chooses to use to solve its problems and this leads to problems for the world economy."

Last week, Ben Bernanke hinted that the U.S. Federal Reserve would do more to support the stalling U.S. economy but, in his annual speech to a Fed gathering in Jackson Hole, Wyo., he avoided the emphatic language he used in a similar speech last year and offered no detailed discussion of the Fed's easing options. That suggests the Fed is unlikely to launch a third round of quantitative easing – nicknamed QE3 – unless the economic situation grows substantially worse.

The Brazilian real has appreciated by more than 40 per cent against the dollar since the end of 2008, prompting a flurry of currency intervention by the central bank and measures by the government to force speculators out of the market.

However, despite the industrial slowdown, Brazil's GDP still grew 3.1 per cent on a yearly basis thanks to strong consumer demand, investment and the robust services sector. Government spending also boosted growth in the second quarter, rising 1.2 per cent, and even outpaced the 1 per cent growth in consumer spending.

Economists have long argued that Brazil's government must cut its own consumption if it is to curb inflation, which is currently running above the central bank's target at 7.1 per cent a year.

"This is still quite solid growth as internal demand accelerated but so did the contribution from the public sector, which is less desirable" said Zeina Latif, economist at Royal Bank of Scotland in São Paulo. "It's very important to maintain the economy on its tracks through fiscal policy; the government should see this crisis as an opportunity to do this and accept this deceleration."

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