BRASILIA Leftist former leader Luiz Inacio Lula da Silva was sworn in as President Dilma Rousseff's chief of staff on Thursday amid a deepening crisis in Brazil as protests against his appointment continued for a second day and a judge sought to block the move.
Police used tear gas to disperse hundreds of opposition protesters who clashed with Lula's supporters outside the futuristic presidential palace in the capital Brasilia before his swearing-in.
Demonstrations also took place in Sao Paulo and Rio de Janeiro amid anger that Lula's appointment will shield the former president from prosecutors who have charged him with money laundering and fraud as part of a sweeping graft probe centred on state oil company Petrobras (PETR4.SA).
Only Brazil's Supreme Court has jurisdiction in cases against ministers.
Shortly after the swearing-in ceremony, a federal judge in Brasilia issued an injunction to suspend Lula's appointment on the grounds it prevented "the free exercise of justice." The move was likely to inflame tensions that are already running high between the executive and the judiciary.
The attorney-general's office said it would appeal in a higher court. It was not immediately clear whether Lula,70, could exercise his office.
Rousseff appointed her mentor, who remains one of Brazil's most influential politicians six years after leaving office, in an effort to shore up her support against pending impeachment proceedings, which could start on Thursday.
The corruption investigation, however, has weakened Lula's sway in Congress and there are growing signs that Rousseff's main coalition partner is preparing to abandon the unpopular government, which is struggling to cope with Brazil's worst recession in a generation.
During the swearing-in ceremony, Rousseff strongly criticized the release on Wednesday of a taped telephone conversation between her and Lula that was made public by another federal judge. The judge said the tape showed they had discussed influencing prosecutors and courts to protect the ex-president.
"Convulsing Brazilian society with lies, with reprehensible practices violates constitutional rights and as well as the rights of citizens," said Rousseff, who is herself facing mounting pressure to quit. She called the recording illegal and anti-democratic.
RIGHT TO KNOW
Judge Sergio Moro, who is overseeing the graft probe, said in a court filing released on Wednesday that the taped telephone conversations did not provide proof that Lula and Rousseff carried out plans to interfere with his investigation.
He said, however, that he released the recordings because citizens had a right to know how they were being governed.
One recording, made public by the court, showed Rousseff offering to send Lula a copy of his appointment urgently "in case it was necessary" - a possible reference to the ministerial post providing him with immediate immunity.
Brazil's biggest ever corruption probe, which centres on the bribes and political kick backs at Petrobras, has led to the conviction of dozens of executives and politicians while recovering 2.9 billion reais ($794.46 million) in stolen money.
The prosecutor leading the investigation, Deltan Dallagnol, said in a statement from the southern city of Curitiba that "judicial powers will not be intimidated", following Rousseff's criticism of the recordings.
An impeachment process against Rousseff, centred on an unrelated allegation of irregularities in the government's budget accounting, was expected to kick off in Congress on Thursday, with the nomination of the commission expected to hear the proceedings in the lower house.
Lula and Rousseff have denied any wrongdoing.
Brazil's currency and stock market gained sharply on Thursday, as a second day of protests calling for Rousseff's ouster boosted bets on her removal. Investors hope the fall of her left-leaning government would usher in more market-friendly policies.
Brazil's powerful industry lobby, the CNI, said the political crisis was having "catastrophic" consequences for businesses and called on the country's politicians to overcome their differences to restore confidence.
The appointment of Lula to the cabinet triggered large protests in several Brazilian cities on Wednesday, just days after more than 1 million Brazilians took to the streets on Sunday to demand Rousseff's resignation.
With Brazil's $2 trillion economy mired in its worst recession in a generation, popular anger at Rousseff is mounting as the long investigation into Petrobras taints her inner circle.
The scandal has divided her governing coalition and moved her main partner, the PMDB party, closer to breaking with her government.
Vice President Michel Temer, leader of the PMDB, did not attend the swearing-in of Lula, his aides said, because Rousseff appointed a party lawmaker, Mauro Lopes, as civil aviation minister even though a party convention on Saturday banned its members from taking new posts in her government.
($1 = 3.6503 Brazilian reais)
(Additional reporting by Caroline Stauffer; Editing by Daniel Flynn and Frances Kerry)
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