The dollar closed higher, nearing R$3,40, still keeping an eye on the UK market.

By Bruno Federowski

SAO PAULO (Reuters) The dollar closed higher, approaching 3,40 reais on Monday, with investors favoring defensive strategies after the United Kingdom decided to leave the European Union (EU), but reacting positively to the possibility of economic stimulus in the rest of the world and adopting some optimism regarding Brazil.

The dollar rose 0,44 percent to 3,3946 reais on the sell side, after reaching a high of 3,4167 reais and a low of 3,3733 reais during the session. The dollar futures contract was up about 0,60 percent in late afternoon trading.

The US dollar closed 1,05 percent higher on Friday, but rose as much as 3,15 percent during the day, to 3,4500 reais.

"The initial shock (of Britain leaving the EU) has passed, but the market remains concerned. The consequences of this decision for the world are still very uncertain," said João Paulo de Gracia Corrêa, regional foreign exchange superintendent at the brokerage firm SLW.

Traders fear that the British decision will affect the mood of foreign investors and hit the global economic recovery, impacting assets in emerging countries like Brazil.

On Monday, S&P cut the UK's "AAA" rating by two notches to "AA", and warned that further downgrades may follow.

"Many fear that the British decision could be the final straw that causes the EU to break loose," analysts at Brown Brothers Harriman bank wrote in a note to clients.

On the other hand, analysts point out that trade ties between Latin America and the United Kingdom are small and that the turbulence could trigger new stimulus measures worldwide. Several central banks went public on Friday to assure that they are ready to act, including Brazil.

Some believe that even the Federal Reserve, the US central bank, may decide to wait longer before raising interest rates.

"(The British exit) could be catastrophic or it could be a relatively temporary event. It depends on how the central banks respond, on how the institutional transition goes," said a trader at an international brokerage firm.

In Brazil, investors continued to adopt a cautiously optimistic stance regarding the government of interim president Michel Temer, which contributed to bringing some relief to the US dollar.

In the short term, traders highlighted the participation of the Central Bank president, Ilan Goldfajn, in the release of the Quarterly Inflation Report on Tuesday as the main economic event of the week.

In addition to giving clues about when he intends to start reducing the benchmark interest rate, currently at 14,25 percent, Ilan may offer more information about his stance on currency intervention. On Friday, the Central Bank stated that, if necessary, it will take measures to maintain the normal functioning of the markets.