RIO DE JANEIRO: Brazilian financial markets sold off on Monday on anxiety about the impact of a wide-reaching political that broke over the weekend involving politicians connected to the country's main presidential contenders ahead of the October elections.
Shares of state-run oil company Petroleo Brasileiro SA fell 4.6 percent after Brazilian news media reported that a jailed former executive of the company known as Petrobras named dozens of politicians who allegedly received kickbacks on its contracts.
Brazil's benchmark Bovespa index sank more than 2 percent while the real currency weakened more than 1 percent.
Among those implicated in the scandal were several lawmakers who support President Dilma Rousseff, as well as former presidential candidate Eduardo Campos, who died in a plane crash last month and was replaced by environmentalist Marina Silva.
Investors feared that Silva, who they consider their strongest alternative to four more years of a government they are highly critical of, could lose some support in upcoming election polls either hurt by the scandal or by a recent increase in attacks from other candidates against her government program.
"The main risk is that Marina may have topped (in opinion polls), and now the market is worried that Dilma may regain some ground," said Pedro Tuesta, an analyst with the consultancy 4Cast.
Some analysts believe the scandal would have a smaller impact on Rousseff's electoral base, which remains steady in the northeast states which have benefited the most from her social programs.
Key to the performance of Brazilian markets will be a series of election surveys which are expected to be released on Tuesday.
Also weakening the Brazilian real was a central bank decision to slow down the pace of the rollover of currency swaps that expire early next month.
Those are derivative contracts offering a hedge against currency losses that the central bank has been selling on a daily basis to support the real.
In the equities market, shares of Brazilian wireless operator Tim Participacoes SA jumped 6.2 percent on news that Mexico's America Movil planned to hold talks with Brazil's Oi SA to buy Tim.
Oi's shares closed 1.2 percent lower in the Brazilian market, while America Movil gained 1.3 percent, contributing the most to a 0.3 percent rise in Mexico's benchmark IPC stock index.
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