BRASILIA, Feb 18 (Reuters) - Brazilian markets fell on Monday as investors feared a brewing political scandal could put strains on President Jair Bolsonaro’s coalition in Congress, hurting his ability to pass a pension reform seen as key to bolstering the country’s economic recovery.
Bolsonaro is facing pressure from some supporters to fire one of his most senior aides, Secretary General Gustavo Bebianno, over accusations of misuse of campaign funds in the October election.
Bebianno, who helps coordinate internal government affairs and was acting president of Bolsonaro’s right-wing Social Liberal Party last year, denies wrongdoing. Debate over his fate has exposed sharp differences among allies in Congress.
Brazilian markets put in one of their best performances of the year last week as investors welcomed early details of the government’s proposed social security reform.
But some of that gloss came off in early trading on Monday, likely exacerbated by thin liquidity due to the U.S. Presidents Day holiday. Brazil’s stocks and currency slipped, while implied market interest rates a year out edged higher.
“This was the main news over of the weekend, so perhaps it is weighing on sentiment a bit as New York is out today, but I would not expect a major market move,” said one fund manager in Sao Paulo.
“Critics of Bolsonaro’s administration will say this is the beginning of the end and the walls are closing in. But I don’t think this spat tells us too much about reforms or the future of the administration,” he added.
Brazil’s Bovespa stock market fell 0.6 percent, the dollar rose 0.75 percent to 3.7300 reais and January 2020 interest rates rose 2.5 basis points to 6.395 percent .
Last week, the Bovespa rose 2.3 percent, within touching distance of its record high 98,588 points. Interest rates fell 15 basis points, the biggest weekly drop for two months. (Reporting by Jamie McGeever Editing by Brad Haynes and Tom Brown)