EMERGING MARKETS-Brazil real, stocks eye biggest weekly gain since 2008 on Lula's detention
By Walker Simon and Bruno Federowski SAO PAULO, March 4 (Reuters) - Brazil's stocks and currency looked set to end the week with their biggest gain in almost eight years after police detained former president Luiz Inacio Lula da Silva for questioning on Friday in an investigation of a bribery and money laundering scheme. Police said they had evidence that Lula received illicit benefits from kickbacks at state-controlled oil company Petrobras in the form of payments and luxury real estate. The evidence against Lula also brings the operation closer to his protegee and successor, President Dilma Rousseff, who is fighting off impeachment and struggling to pull the country out of its worst economic downturn in decades. "Maybe this is helping Brazilian assets because of the idea that it will speed up the impeachment process (of Rousseff)," said Guillaume Tresca, an emerging markets senior strategist at Credit Agricole in Paris. "That is a very long process, but it could trigger political change, and that is the only hope right now." Analysts from political risk consultancy Eurasia Group said the news made it more likely than not that Rousseff would not finish her term. For months, Brazilian assets have often rallied when prospects of a change in government appeared to increase. Businesses had decried Rousseff's intervention in the economy, but since her second term began in January, she has rolled back some of the earlier initiatives. Lula's detention is part of a sweeping two-year investigation that has ensnared powerful lawmakers and business executives and was sparked by probes into kickbacks to politicians from Petroleo Brasileiro SA, as Petrobras is formally called. The benchmark Bovespa benchmark stock index and the Brazilian real both headed toward their biggest weekly gains since October 2008. Petrobras shares jumped for the fifth straight day and looked set to end their best week in more than 12 years. In international markets, the cost of insuring the country's debt fell to a three-month low, and bonds rallied. Indications that the central bank could ease its support for the real drove the currency off its session high of 3.65 per U.S. dollar. The bank sold only 8,000 of the 9,600 currency swaps it has been offering daily, a sign that it could allow about 15 percent of the $10 billion in contracts maturing in April to expire. It has fully rolled over every maturity since August. "We view this as an important signal by (the central bank) as it shows that the monetary authority might not allow a sharp nominal appreciation of the (real) beyond about 3.70," BNP Paribas strategists wrote in a client note. The bank manages about $110 billion in outstanding currency swaps, which offer investors protection from sharp devaluations in the real. The derivatives cost the central bank around 90 billion reais ($24 billion) last year, drawing sharp criticism from some analysts. When reported in local currency terms, however, the losses were more than offset by higher foreign reserves due to a weaker real. "This could be an opportunity for the central bank to reduce the stock of currency swaps," said Francisco Carvalho, head trader at BGC Liquidez brokerage in São Paulo. Key Latin American stock indexes and currencies at 1755 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging Markets 793.93 1.76 -1.76 MSCI LatAm 2051.43 4.57 7.21 Brazil Bovespa 49209.71 4.27 13.52 Mexico IPC 45252.85 1.14 5.29 Chile IPSA 3839.46 0.58 4.33 Chile IGPA 18739.94 0.17 3.24 Argentina MerVal 13415.95 0.66 14.91 Colombia IGBC 9637.84 0.61 12.76 Venezuela IBC 16318.24 0.31 11.86 Currencies daily % YTD % change change Latest Brazil real 3.7241 2.07 5.99 Mexico peso 17.7715 0.81 -3.05 Chile peso 680.2 1.00 4.34 Colombia peso 3157.75 1.12 0.37 Peru sol 3.4431 0.55 -0.85 Argentina peso (interbank) 15.1700 0.53 -14.42 Argentina peso (parallel) 15.67 0.26 -8.93 (Reporting by Walker Simon and Bruno Federowski; Editing by Lisa Von Ahn)
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