Brazil’s ex-President Lula held in anti-graft bust

Former Brazilian President Luiz Inacio Lula da Silva was detained for questioning on Friday in a federal investigation of a bribery and money laundering scheme that the police said had financed campaigns and expenses of the ruling Workers Party.

His detention was the highest profile arrest in a sweeping corruption investigation that has ensnared powerful legislators and business executives in Latin America’s biggest economy.

The arrest threatened to tarnish the legacy of Brazil’s most powerful politician and the tactics that his left-leaning Workers’ Party used to consolidate its position since rising to power 13 years ago.

The police, who arrested Mr da Silva at his home in Sao Bernardo do Campo on the outskirts of Sao Paulo, said they had evidence that he received illicit benefits from kickbacks at state oil firm Petroleo Brasileiro SA in the form of payments and luxury real estate.

The evidence against Mr da Silva brought the corruption investigation closer to his protegee and successor, President Dilma Rousseff, who is fighting off impeachment over an unrelated issue and who is struggling to pull the country out of its worst economic downturn in decades.

Mr da Silva’s detention sparked a rally in Brazilian assets as traders bet that the political upheaval could empower a more market-friendly coalition. The Brazilian real currency gained more than three per cent against the US dollar and the benchmark Bovespa index climbed nearly five per cent. Shares of Petrobras led the rally with a 14 per cent surge.

“Ex-President Lula, besides being party leader, was the one ultimately responsible for the decision on who would be the directors at Petrobras and was one of the main beneficiaries of these crimes,” a police statement said.

“There is evidence that the crimes enriched him and financed electoral campaigns and the treasury of his political group.”

Mr da Silva’s foundation said in a statement that his detention was “an aggression against the rule of law and Brazilian society”. The foundation has consistently denied any wrongdoing by Mr da Silva.