* Judge found insufficient evidence to hold Esteves
* Shares in BTG rise 7.6 percent
* Senator remains in detention (Updates share prices in paragraphs 1,9)
By Maria Carolina Marcello and Guillermo Parra-Bernal
BRASILIA/SAO PAULO, Dec 17 (Reuters) - Brazil’s Supreme Court ordered the release of billionaire financier André Esteves from prison on Thursday, sparking a rise in units of the bank he founded, Grupo BTG Pactual SA, amid hopes it would be spared from a corruption probe.
Justice Teori Zavascki ruled that Esteves could trade prison for house arrest, provided he does not leave the country, after the financier’s lawyers argued there was insufficient evidence to hold him in pre-trial detention.
The judge’s ruling also banned Esteves from running companies involved in Brazil’s largest ever corruption probe, known as “Operation Car Wash.” He is currently being held in Bangu VIII prison in Rio de Janeiro.
“Operation Car Wash” is investigating links between ruling coalition politicians and business leaders who traded contracts with state firms for bribes and donations.
Esteves and Senator Delcídio do Amaral, the former head of Brazil’s governing coalition in the upper house, were arrested on Nov. 25 on suspicion of obstructing the investigation into corruption at state-controlled oil producer Petroleo Brasileiro SA, or Petrobras.
In a separate decision, Zavascki ordered that Amaral should be kept in jail. Both Esteves and Amaral have denied the allegations against them.
Zavascki’s ruling said that prosecutors had failed to collect evidence that justified keeping Esteves behind bars. The judge said prosecutors had not proven Esteves participated in a November meeting between Amaral and the son of former Petrobras executive Nestor Cerveró.
“It’s a fair move that shows that his imprisonment had no basis in evidence,” Esteves’ lawyer, Antonio Carlos de Almeida Castro, told Reuters by phone from Brasilia.
The bank’s São Paulo-traded units, a blend of voting and non-voting shares in BTG Pactual’s banking and private-equity divisions, closed up 7.6 percent, their fourth rise in five sessions, after rising as much as 11 percent.
Traders said Esteves’ release could be seen as a sign that the bank, Latin America’s biggest private investment bank, would be spared from the corruption probe.
Police have jailed dozens of executives and are investigating politicians, some of them allies of President Dilma Rousseff. The president herself is not being investigated but has seen her approval rating slump as many Brazilians question how she failed to stop graft at Petrobras when she chaired the company between 2003 and 2010.
Authorities said in November Amaral was caught on tape arranging bribes to keep Cervero from signing a plea deal that Amaral feared could implicate him, fees that would allegedly be paid by Esteves.
Documents produced by Amaral’s defense on Thursday, obtained by Reuters, said the senator’s mention of Esteves in taped conversations was a bluff to give Cervero’s family the impression they would be taken care of.
Under the terms of his release, Esteves will have to surrender his passport to the federal police, will be barred from working with any company linked to the corruption investigation and must report to court every 15 days.
A newspaper reported earlier on Thursday that Brazilian prosecutors suspect Esteves paid bribes to buy Africa-based assets from Petrobras. O Estado de S. Paulo newspaper reported that Esteves was linked to the payment of bribes in a plea bargain by lobbyist Fernando Soares.
Esteves’ lawyer denied the allegations. Petrobras and the Prosecutor-General’s office did not immediately comment.
BTG Pactual is shedding assets and halting new loans after Esteves’ arrest triggered large client fund withdrawals and hampered access to funding. So far, the partners who took over from Esteves have managed to bulk up cash and avert a rapid downsizing of the bank, government sources told Reuters last week. Esteves relinquished all his executive duties at the bank soon after his arrest. (Editing by Frances Kerry)