(Recasts with statements from Rousseff, Amaral, Lula, market reaction)
By Anthony Boadle
BRASILIA, March 3 (Reuters) - Brazilian President Dilma Rousseff lashed out on Thursday at the leaking of testimony to the media after a newsweekly published allegations linking her and her mentor, ex-President Luiz Inacio Lula da Silva, to a giant graft probe roiling Brazil.
The magazine IstoE reported that ruling party Senator Delcidio Amaral, a key legislative ally for Rousseff before he was arrested in November, allegedly tied the president and her predecessor to the scandal engulfing state oil company Petrobras in a 400-page statement made to prosecutors.
In a communique issued by her office, Rousseff condemned the widespread use of leaks as a political weapon.
“Apocryphal, selective and illegal leaks should be repudiated and rigorously investigated because they undermine the law, justice and truth,” she said.
If confirmed, the IstoE revelations would complicate efforts by Rousseff, already grappling a deep recession and political gridlock, to weather the kickback probe that has toppled dozens of corporate executives and drawn ever closer to her inner circle.
Amaral said in a statement he could not vouch for the authenticity of documents cited by IstoE, but did not deny seeking leniency from prosecutors in return for information.
Allegations that kickbacks were used to finance Rousseff’s 2014 re-election campaign are at the center of a judicial effort to annul her victory. Her campaign strategist is in jail on the suspicion he was paid with graft money.
Brazilian markets soared as investors speculated that the scandal could topple a leftist government known for interventionist policies that economists say led Brazil toward recession, an onerous deficit and rising debt levels.
The real currency rose more than 2 percent against the dollar while the Bovespa stock index jumped 5.4 percent.
Opposition leader Aloysio Nunes of the PSDB party, himself under investigation for suspected corruption, called for Rousseff’s resignation.
The government scrambled to contain the damage by questioning the credibility of a politician who is being prosecuted and faces expulsion from the party and the Senate. After more than three months in jail, Amaral was released on Feb. 19, days after his plea statements to prosecutors, IstoE reported.
“If this plea bargain exists, Senator Amaral is lying through his teeth ... to get out of jail and save his seat in the Senate,” Attorney General Jose Eduardo Cardozo told reporters.
The senator reportedly testified that Rousseff used her influence to keep directors suspected of corruption in positions at Petroleo Brasileiro SA, as Petrobras is formally known. The probe has uncovered how major contractors agreed to pay kickbacks to company executives, political parties and elected officials in exchange for work.
IstoE said Amaral testified that Rousseff tried on three occasions to use the justice ministry to interfere in the Petrobras probe and get suspects released from prison.
Amaral reportedly detailed illegal funding of Rousseff’s 2010 election campaign and said she knew all about the purchase of a refinery in Pasadena, Texas, that cost Petrobras many times more than it was worth.
IstoE said Amaral accused Rousseff of appointing a favorable Supreme Court justice to help avert conviction of some directors and statesmen under investigation for bribes and kickbacks at Petrobras.
Amaral also said Lula had full knowledge of the bribery and political kickback scheme, which siphoned billions of dollars off overpriced contracts with Petrobras, and tried to block prosecutors from investigating it, according to IstoE.
The public prosecutor’s office said it could not comment on plea bargains until the Supreme Court approves them as valid evidence.
Lula’s foundation said in a statement that the former president had never committed any illegal acts as president, nor before and after being in office.
Lula, who founded the Workers’ Party and was president from 2003 until 2010, is under investigation by federal prosecutors who suspect he received undue favors while in office from engineering firms they are probing.
His standing as Brazil’s most popular politician has been hurt by another probe that involves a beach-front penthouse and country estate that were allegedly renovated for him by OAS and Odebrecht, two of the builders implicated in the Petrobras scandal. He denies ownership of the properties.
Thursday’s allegations overshadowed what a day earlier had been welcome news for Rousseff, as the Supreme Court voted to indict her archenemy, lower house speaker Eduardo Cunha, on related corruption charges.
Cunha’s downfall would improve her chances of blocking an impeachment process he launched against her in December. (Reporting by Anthony Boadle, and Reese Ewing in Sao Paulo; Editing by Daniel Flynn and Lisa Von Ahn)