Brazil stocks, currency extend rally on former president charges

Brazil’s stocks and currency rose on Thursday, extending a recent rally fueled by hopes ofpolitical change after prosecutors charged former President Luiz Inacio Lula da Silva in a money laundering investigation.

State investigators suspect the family of the former president, who was detained for questioning by federal police on Friday, owned an undeclared beachfront apartment in the city of Guaruja.

Lula’s support for current President Dilma Rousseff was widely seen as a key factor behind her re-election.

Rousseff is facing impeachment proceedings in Congress and many traders believe the corruption probe could strengthen the odds of her ouster and thus help the crisis-ridden country recoup its credibility.

“Political issues are the main market driver and will remain so for a while,” said Carlos Vieira, an economist with Lerosa brokerage in São Paulo.

Shares of state-controlled oil company Petrobras, the center of a wide-reaching graft scandal, rose as much as 3 percent, but later turned negative on the back of lower crude prices.

Nevertheless, the benchmark Bovespa stock index remained in the black, supported by leading banks ItauUnibanco and Bradesco, up 3.3 percent and 2.1 percent, respectively.

Investors said the banks, as well as state lender Banco do Brasil SA, were being lifted by optimism about the political scenario.

Traders saw little immediate market impact from Brazil’s plan to tap global markets for the first time since it lost its investment grade rating with a dollar-denominated bond.

The Brazilian real revisited its six-month highs and strengthened for the seventh session in the last eight. Trading was volatile, however, as some investors bet the central bank could see the recent rally as a cue to reduce its support for the currency.

Brazil’s central bank has about 110 billion reais ($29.92 billion) in outstanding currency swaps on its books, contracts which offer protection from sharp currency devaluations. The strategy has drawn criticism from some analysts due to its high fiscal costs.

The bank has been fully rolling over the stock of currency swaps for several months. Some traders saw a decision to only sell some of the contracts offered in a daily auction on Friday as a signal it could allow some to mature in April.