SAO PAULO, May 4 (Reuters) - A gradual economic recovery in Brazil coupled with higher commodities prices should help domestic firms generate more cash in coming months, reducing short-term liquidity risks, analysts at Moody's Investors Service said on Thursday.
Moody's analysts led by Erick Rodrigues said in a report that Brazilian firms may find it increasingly easier to cover their funding needs over the next two years as the economy emerges from Brazil's worst recession on record. Lower interest rates are also providing some relief for debt-laden firms, the report said.
Only 16 percent of 37 Brazilian non-financial companies monitored by Moody's had risks seen as "high" related to fund-raising last year, compared to about 22 percent in 2015.
Funding risks for state-controlled Petróleo Brasileiro SA , known as Petrobras and the world's most indebted major global oil firm, have declined but continue to be high, the report said.
The report underscored an improved outlook and gradual improvement in corporate profits. For the past three years, mounting political and economic turmoil dragged on results at some of the country's largest companies.
Signs that Latin America's largest economy is emerging from a recession that is entering a third year have fueled hopes that demand will gradually pick up this year and in 2018, the report added.
"A robust improvement in credit quality will depend largely on sustained recovery in demand," the report added.
A preliminary analysis of first-quarter results has shown signs that factories, services companies and commodity producers have been able to improve their ability to generate free cash flow, or the money left for bond and shareholders after all expenses are paid.
That has come despite tepid sales and revenue growth, cost pressure and still-high debt servicing costs.
Vale SA, the world's largest iron ore producer, generated $2.454 billion in free cash flow in the past quarter, surpassing a $2.2 billion full-year target. (Reporting by Bruno Federowski; Editing by Guillermo Parra-Bernal and Tom Brown)