--Real strengthens to BRL1.8909/dlr Vs BRL1.8995 Friday --Prospects improve for bailout of European countries --Euro, commodities prices rise against U.S. dollar SAO PAULO (Dow Jones)--The Brazilian real strengthened against the U.S. dollar in early trading Monday as prospects improved for a bailout of debt-ridden European countries. The real was trading at BRL1.8909 to the dollar early in the session, stronger than the Friday close of BRL1.8995, according to Tullett Prebon via FactSet. "Prospects for funding of European debts seem to be improving," said Alberto Felix de Oliveira, a trader at Sao Paulo's Indusval brokerage. "The news from the U.S. is also favorable. It looks like retail sales got off to a good start for the Christmas season. This makes a U.S. recession seem less likely." European finance ministers are due to meet Tuesday and may finally be able to hammer out details on the use of a regional bailout fund for debt-ridden members. Meanwhile, weekend reports indicated the International Monetary Fund may be willing to aid Italy in rolling over huge debts. Renewed Europe hopes helped boost the euro against the U.S. dollar. The stronger euro brought higher international commodities prices. Higher commodities prices are a direct aid to Brazilian exports and tend to support the Brazilian real against the greenback. But analysts and traders were also quick to point to limits for strengthening of the real. "Markets today are responding to European hopes, but to a certain extent this may be wishful thinking," said Paulo Faria-Tavares, managing partner of Sao Paulo's PTX Lending consultants. "Up today can easily become down tomorrow." Oliveira said it was unlikely the real would strengthen to BRL1.85 to the dollar. "Despite progress on the European front, it is also true that trade financing is becoming more scarce," he said. "There is also lingering risk aversion, with fewer investments coming into countries like Brazil." Later this week, the Brazilian Central Bank will review its Selic base interest rate. The rate is currently 11.5%. The bank is widely expected to cut the Selic rate as a way to boost economic growth in 2012. Current betting is that the central bank will cut the Selic rate to 11.0%, but some are already predicting a cut to 10.75%. Lower Brazilian interest rates will tend to reduce foreign investment inflows even more, analysts said. -By Tom Murphy, Dow Jones Newswires; 55-11-3544-7090; brazil@dowjones.com

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