Brazil's stock market fell as much as 3.8 percent and the currency tumbled on Friday after reports of a possible corruption scandal within the government sent investors ducking for cover.
The scare was sparked by a report in weekly news magazine Epoca saying a close advisor to President Luiz Inacio Lula da Silva's chief of staff had collected campaign funds in return for political favours while working in the Rio de Janeiro state government in 2002.
The aide, Waldomiro Diniz, was fired hours after the report was posted, shortly before the market opened, on the magazine's Web site.
But the incident threatened to tarnish the image of the left-leaning Lula government and left investors wondering if other officials would be caught up in the scandal.
"This is clearly the beginning of scandal, and now people are wondering where it's going to end," said Roberto Dantas, head of equities trading at Banco Schahin in Sao Paulo.
After sinking almost 4 percent earlier in the session, the Sao Paulo Stock Exchange's benchmark Bovespa index finished 2.31 percent lower at 22,529.8 points in volatile trade, in part due to the expiration of stock options on Monday.
Slumping share prices on Wall Street also weighed on sentiment, traders said.
The Brazilian real, meanwhile, shed 0.8 percent of value at its nadir, but finished 0.35 percent weaker at 2.906 per dollar.
Brazil's leading internationally traded bond, the Global 40, dropped 1.2 percent to 108.875 amid heavy profit-taking.
Political jitters aside, investors expressed relief at official inflation data released on Friday confirming that a price surge at the beginning of the year was not as bad as originally thought.
The state-run Brazilian Institute for Geography and Statistics said its IPCA consumer price index rose 0.76 percent in January, following a 0.52 percent advance in December, in line with market expectations.
"The numbers weren't so bad after all," said Bruno Garcia, a managing partner at ARX Capital Management in Rio de Janeiro. "But that doesn't mean that inflation is no longer a concern."
Markets have been on edge since the Central Bank put an end to a seven-month string of interest-rate cuts last month, raising some red flags about the prospect of resurgent inflation.
The bank's Monetary Policy Committee is set to meet again next week, but most economists expect it to hold its key overnight lending rate at a lofty 16.5 percent.
At the Bovespa, stocks slumped across the board, dragged down by sliding energy shares.
Rio de Janeiro power distributor Light was among those taking the biggest hit, plunging 7.26 percent to 62.55 reais.
Shares in state oil giant Petroleo Brasileiro also fell, dropping 1.56 percent to 85.79 reais, after the company posted an 8 percent rise in fourth-quarter profit, coming up short of market expectations.
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