(Adds Barbosa comment in Davos on inflation)
By Alonso Soto and Silvio Cascione
BRASILIA, Jan 21 (Reuters) - Brazilian Finance Minister Nelson Barbosa failed to calm markets with promises of reform on Thursday, as investors said erratic policy signals raised doubts over the left-leaning government's ability to end the worst recession in decades in Latin America's largest economy.
Brazil's currency, the real, fell to a record low against the dollar and long-term interest rate futures surged a day after the central bank surprised markets by holding its key interest rate steady at 14.25 percent. It had previously signaled a hike was needed to curb high inflation.
The decision stoked concern among critics that President Dilma Rousseff had intervened to avert monetary tightening with the economy already on the ropes. Figures on Thursday showed Brazil lost 1.5 million payroll jobs last year, its worst annual result in nearly three decades.
The number of employed people in Brazil fell 3.7 percent in 2015. That decline is comparable to job losses in the United States during the height of its financial crisis in the 12 months after September 2008.
Barbosa, a leftist economist, said the crisis was temporary and that Brazil's economy would adjust to global headwinds
"This is not the new normal. This is a transition phase for Brazil," Barbosa said at a panel in the World Economic Forum in Davos, Switzerland. He added that the government would need to press ahead with "some structural changes."
The minister said previously that Brazil will seek to lower the cost of one the world's most generous pension systems and to simplify the tax code.
The appointment of Barbosa to replace fiscal conservative Joaquim Levy at the Finance Ministry in December was considered by many as a clear shift in policy direction to try to rescue the once-booming economy.
Since then, Rousseff, who faces impeachment proceedings in Congress, has sent mixed signals to investors with promises to press ahead with austerity to close a widening fiscal gap and fight inflation while at the same time bolstering credit.
"We are lost because we are receiving mixed signals from a very weak government," said Bruno Rovai, an economist with Barclays in New York. "The big concern is whether we will have this uncertainty until 2018 ... we may not have a recovery at all until we have a new government."
Brazil's currency has weakened nearly 5 percent so far in January after losing 32 percent of its value against the greenback during 2015. The real closed 1.5 percent lower on Thursday, at 4.1655 per dollar - its lowest closing level since the currency was created in 1994.
Rousseff, whose second four-year term is due to end in late 2018, is torn between calls from her leftist allies in Congress who want more measures to restart the economy and markets pressing for greater commitment with austerity.
Investors are concerned that Rousseff is shifting back to the interventionist policies of her first term that severely eroded confidence in an economy that at one point was a darling of Wall Street.
Responding to the rate decision, one-year interest rate futures fell as low as 14.75 percent on Thursday, down from a 15.175 percent close on Wednesday. Five-year contracts rose and the spread between the two widened to two percentage points for the first time.
Moody's Investors Service, the only one of the three major ratings agencies that has not stripped Brazil of its investment-grade status, said the central bank's rate decision "may entrench higher inflationary expectations."
In Davos, however, Barbosa dismissed concerns over prices, vowing that the government will rein in inflation below market expectations of 7 percent and reach 6.5 percent by year-end.
"The market perspectives are very pessimistic. Things can happen that will slow inflation to below what the market is expecting today," he told the GloboNews cable channel. (Additional reporting by Bruno Federowski and Anthony Boadle; editing by Frances Kerry, Dan Grebler, G Crosse)