Brazil's Lula detained by police for questioning, stocks jump

Brazil’s previous president Luiz Inacio Lula da Silva was detained on Wednesday as part of a police probe into a widening corruption scandal with state-owned oil major Petrobras at its centre.

Local media reported da Silva was detained and taken to Congonhas local airport in Sao Paolo to be questioned.

There was evidence that Lula had benefited from the Petrobras scheme in the form of an apartment and country home, federal prosecutors said in a statement posted on their website.

The ex-head of Brazil’s Workers’ Party governed South America’s largest economy for two terms between 2002 and 2010.

He was widely credited by some for the flourishing Brazilian economy during his time in power, which coincided with China’s commodity boom.

[There is] no evidence that a change in government will necessarily be followed by a stable political situation - Bruno Rovai

Nevertheless, at the start of his administration he was instrumental in helping to stabilise the country’s currency and debt markets, after he chose to follow many of the previous government's market-friendly policies.

However, both Lula and his successor, his lieutenant Dilma Rousseff, had been criticised for failing to carry out the structural reforms which the country sorely needed, choosing instead to put emphasis on an ambitious agenda of social welfare programs.

Data published on 3 March revealed the country’s gross domestic product shrank by 3.8% in 2015.

Somewhat counter-intuitively, news of his detention saw the US dollar weaken by -2.19% to 3.7106 as of 13:18GMT.

Some market observers appeared to believe his detention might add to pressures on Rouseff to step down.

The Sao Paolo's Stock Exchange's benchmark IBovespa equity index jumped 5.3% to 49,718.55.

"If former President da Silva fails to give satisfactory explanations to maintain his innocence, we believe this event could contribute to the loss of three sectors of President Rousseff’s support base, which could further isolate her and increase the chances of impeachment," Barclays's Bruno Rovai said in a research report sent to clients.

"An isolated, strained president could become susceptible to an impeachment, and the true test will be in the street protests on March 13. [...] However, we highlight that, at the current stage, there is no evidence that a change in government will necessarily be followed by a stable political situation, as the country could be heading towards a divide following Car Wash developments."