(Recasts throughout, adds comments by finance minister)

SAO PAULO (Reuters) - Brazil vowed Wednesday todefend its exporters as governments worldwide moved to weakentheir currencies as a way of speeding up an economic recovery.

Brazil's central bank is fighting to curb appreciation inthe country's currency, the real, which has made exports moreexpensive and could cause long-term damage to its industry.

Finance Minister Guido Mantega said he would not sit on thesidelines "watching the game" while other countries weakenedtheir currencies at the expense of Brazil.

"We're going to take appropriate measures to stop the realfrom appreciating," Mantega told an event in Rio de Janeiro.

One option, he said, would be to use Brazil's sovereignwealth fund to soak up extra dollars from the upcomingfund-raising plan by state-owned oil company Petrobras.

"We're watching every market, every part, for inflows," hesaid. "If inflows come we'll buy it all. We're not going toleave any excess of dollars in the market."

Mantega said that other countries are relying on exports tolift their struggling economies.

"The United States and Europe are also trying to escape theeconomic crisis by selling exports. They make their monetarypolicy weak to devalue their currencies and export more," headded. "We're aware of this and we won't let it happen."

Japan intervened in currency markets Wednesday for thefirst time in six years while Colombia announced fresh measuresto weaken its peso and protect its exporters.

FIGHTING A LOSING BATTLE?

But despite the Brazilian government's best efforts so far,the real is still trading near its strongest level against thedollar this year and is now ranked the world's most overvaluedmajor currency, according to Goldman Sachs.

Huge foreign investment in Brazil and growing demand forits higher-yielding debt have made the real double in valuesince President Luiz Inacio Lula da Silva took office in 2003.

U.S. dollar inflows to the country totaled$2.114 billion in the month through Sept. 10, the central banksaid Wednesday.

One of the most talked-about measures recently on SaoPaulo's trading floors is the possibility of an auction ofreverse swaps, a form of derivative which would have the sameeffect as buying dollars in the futures market.

That speculation also caused the real to weaken 1.1 percentto 1.725 per U.S. dollar in afternoon trading.

"I don't know where it came from that the central bank wasgoing to start offering swaps. But just with this, just withthe threat, the (real) took a dive," said Joao Medeiros, apartner at Pioneer Corretora, one of Brazil's biggest currencybrokerages. "The market is tense."

Some analysts, however, believe the central bank isfighting a losing battle.

The bank said earlier Wednesday it had bought $815million in dollars on the spot market in the month throughSept. 10. Since last Wednesday the bank has been calling twoauctions daily, rather than just one, to buy dollars.

But these auctions are costly, since the bank gets next tonothing in interest for all the dollars that have piled up inits reserves. The same problem would arise if the governmentused its sovereign wealth fund to buy dollars.

Even reverse currency swaps did not stop a near 70 percentrally in the real when they were last used on a regular basisbetween 2005 and 2008. (Reporting by Rodrigo Viga Gaier in Rio de Janeiro and SilvioCascione in Sao Paulo; Writing by Samantha Pearson; Editing byJames Dalgleish)