SAO PAULO/BRASILIA Former Brazilian President Luiz Inacio Lula da Silva was briefly detained for questioning on Friday in a federal investigation of a vast corruption scheme, fanning a political crisis that threatens to topple his successor, President Dilma Rousseff.
Lula's questioning in police custody was the highest profile development in a longrunning and sweeping graft probe centered on the state oil company Petroleo Brasileiro SA that has rocked Brazil's political and business establishment and deepened the worst recession in decades in Latin America's biggest economy.
The investigation threatens to tarnish the legacy of Brazil's most powerful politician, whose humble roots and anti-poverty programs made him a folk hero, by putting a legal spotlight on how his left-leaning Workers' Party consolidated its position since rising to power 13 years ago.
Police picked up Lula at his home on the outskirts of Sao Paulo and released him after three hours of questioning. They said evidence suggested Lula had received illicit benefits from kickbacks at the oil company, Petrobras, in the form of payments and luxury real estate.
The evidence against the former president brought the corruption investigation closer to his protegee Rousseff, who is fighting off impeachment for allegedly breaking budget rules, weakening her efforts to pull the economy out of a deepening downturn.
News of Lula's detention sparked a rally in Brazilian assets as traders bet that the political upheaval could empower a more market-friendly coalition. The real currency gained more than 3 percent against the US dollar and the benchmark Bovespa index climbed nearly 5 percent. Shares of the state oil giant Petrobras led the rally with a 14 percent 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," said a police statement on his detention.
"There is evidence that the crimes enriched him and financed electoral campaigns and the treasury of his political group."
There was no comment yet from Lula, who has not been charged. His foundation said in a statement that his detention was "an aggression against the rule of law and Brazilian society." The foundation, which has consistently denied any wrongdoing by Lula, called his arrest "arbitrary, illegal and unjustifiable."
Rousseff has also repeatedly denied any wrongdoing.
Workers' Party leaders jumped to the former president's defense, and the Labor Minister Miguel Rossetto said the detention was "a clear attack on what Lula represents."
"This is not justice, this is violence," he said in a public statement.
In the street outside Lula's home, television showed his supporters clad in red shirts exchanged chants, insults and even blows with opponents, underscoring the deep political passions surrounding the former president.
Dozens of police arrived to break up the altercations, clearing the street by force. Pro-Lula protesters also gathered in a noisy protest outside federal police offices at a Sao Paulo airport where he was taken for questioning.
Television showed him leaving the airport in a black sport utility vehicle and arriving at Workers' Party headquarters in downtown Sao Paulo, surrounded by a throng of flag-waving supporters.
As the founder and figurehead of his party, Lula's image has been central to huge street protests over the past year, both for and against Rousseff's impeachment, and powerful unions have marched repeatedly in his name.
"Lula is a politician who polarizes Brazilian society," said Rafael Cortez, a political analyst at consulting firm Tendencias in Sao Paulo. "Whether he goes to jail or not, the allegations against Lula will mobilize political forces onto the streets."
Lula, 70, became a model for a wave of leftist presidents in Latin America, coupling healthy economic growth with popular social programs that lifted more than 30 million out of poverty during his presidency from 2003 to 2010. Yet investigators say much of the corruption at Petrobras happened during that period.
Federal prosecutors who ordered Friday's raids said there was evidence that the former president received funds from the graft scheme at Petrobras through work on a luxury beachside penthouse and a country home.
Lula has said the apartment is not his and it belongs to engineering group OAS, but prosecutors say doormen, OAS engineers and third-party contractors all said the condo was intended for Lula's family.
"The suspicion is that the improvements and the properties are bribes derived from the illegal gains made by OAS in the Petrobras graft scheme," the prosecutors' statement said.
Prosecutors are also investigating payments to Lula by companies involved in the Petrobras scandal that were claimed to be donations and fees for speaking appearances.
Investigators also turned up evidence that Lula received at least 1 million reais ($270,000) in 2014 from OAS with no apparent legal justification by way of improvements and expensive furniture for the beachfront penthouse in Guaruja.
Investigators say Lula acquired two country estates in Atibaia worth 1.5 million reais, between 2010 and 2014, from businessman José Carlos Bumlai and builders Odebrecht and OAS.
Further evidence shows that OAS paid about 1.3 million reais for transport and storage of "items withdrawn from the Alvorada presidential palace when he left office."
Odebrecht representatives said the company was collaborating with a search and seizure operation at its headquarters in Sao Paulo. OAS declined to comment.
Police said they carried out 33 search warrants and 11 arrest warrants in the latest round of the investigation, which is known as Operation Carwash after the small-time money laundering investigation that spawned the probe. Some 200 police and 30 auditors from the federal tax office took part.
Brazilian media reported on Thursday that ruling party Senator Delcidio Amaral, a major legislative ally for Rousseff before he was arrested in November, allegedly tied the president and Lula to the scandal engulfing Petrobras in a 400-page plea bargain made with prosecutors.
Separately, opponents are seeking to impeach Rousseff on the grounds that she deliberately broke budgetary laws to boost government spending as she ran for re-election in 2014.
($1 = 3.7 Brazilian reais)
(Additional reporting by Daniel Flynn, Maria Pia Palermo and Caroline Stauffer; Editing by Frances Kerry)
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