The Chinese currency, which until 2018 was absent from the forex reserves of Latin America's largest economy, rose to 4.99% of Brazilian central bank holdings at the end of last year, from 1.21% at the end of 2020.

That gave it the third largest share of the central bank's reserves, slightly behind the euro, which fell to 5.04% last year from 7.85% in 2020. Dollar reserves fell to 80.34% of the total from 86.03% a year earlier.

The shift underscores China's growing economic importance to Brazil, where it represents 28% of international trade, more than twice the United States, its next largest trade partner, World Bank data shows.

Brazil also increased the exposure of its reserves to other currencies - including the Japanese yen, British pound, Canadian dollar, Australian dollar - and gold, often used as a hedge against other financial assets.

"In 2021, we sought greater diversification in the allocation of currencies, without prejudice to the countercyclical profile of the portfolio as a whole," said the central bank in the annual report on its foreign reserves.

Total reserves rose by $6.58 billion last year to $362.2 billion. Portfolio returns were down 0.62%, the worst performance since 2015, mainly due to the strength of the U.S. dollar against other currencies in the portfolio.

(Reporting by Marcela Ayres; Editing by Brad Haynes and Barbara Lewis)

By Marcela Ayres