Brazilian prosecutors have opened a formal criminal investigation into former president Luiz inácio Lula da Silva for alleged influence peddling in a move that promises to deepen a growing political crisis in Latin America's biggest economy.
Prosecutors said they had elevated a preliminary investigation first announced in May to the status of a formal inquiry, report Joe Leahy and Aline Rocha in São Paulo.
"This investigation existed since May as a preliminary investigation and the prosecutor decided to open a [formal] inquiry before the time limit for doing so expired," said a spokesman for the Federal District public prosecutor's office said.
The Brazilian real reversed its gains on the news, falling 0.41 per cent to R$3.15 against the dollar. Brazilian stocks also fell while yields on Brazilian bonds nudged higher.
The probe into the former president, who ended his two four-year terms in power in 2010 with record approval ratings, is the most serious threat yet to the ruling Workers' Party, or PT, which he helped to found.
His protégé, current President Dilma Rousseff, is already facing growing calls among some elements in Congress for her impeachment amid a deepening political crisis over the ruling coalition's alleged involvement in a vast corruption scandal at state-owned oil company, Petrobras.
Mr Lula da Silva is accused of influence peddling overseas in his dealings with Odebrecht, the nation's largest construction conglomerate, in relation to contracts for projects in Africa and other regions overseas.
Época, a weekly magazine, alleged in May that Mr Lula da Silva had improperly used his influence to obtain loans from Brazil's state development bank BNDES for Odebrecht's dealings in Cuba and the Dominican Republic, often travelling to meet the countries' leaders at the company's expense.
The magazine also accused Mr Lula da Silva, one of the PT's founders, of similar influence peddling in Ghana and Angola. Mr Lula da Silva has denied any wrongdoing.
A spokesman at Mr Lula da Silva's thinktank, Instituto Lula, said it received the news of the formal inquiry "with surprise" given that it had only recently presented information to the state prosecutors.
"But we also received the news with tranquility out of certainty of the honesty and legality of the activities of the Institute and of the ex-president," the institute said.
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