By Bruno Federowski SAO PAULO, March 3 (Reuters) - Brazil's real currency and stocks rallied on Thursday on news that President Dilma Rousseff could be implicated in a sweeping corruption scandal and bets that the central bank could take longer to cut interest rates.
Ruling party senator Delcidio do Amaral, who was arrested in November for allegedly trying to obstruct the corruption probe, has agreed to a plea bargain implicating Rousseff and her predecessor Luiz Inacio Lula da Silva, local media reported.
Analysts said the scandal bolsters the case for Rousseff's impeachment, encouraging investors who blame her Worker Party's interventionist policies for driving Brazil into what could be its deepest recession on record.
The accusations also reduced the odds that Lula, a well-known public figure with high approval ratings, could run for president again in 2018, they added.
"The market is betting Rousseff will not finish her mandate," said Pedro Tuesta, an economist with 4Cast in Washington D.C.
Brazilian stocks rose for a fourth day, also helped by favorable corporate news. However, shares of Embraer SA slumped after the planemaker published weaker-than-expected forecasts for this year.
The Brazilian real outperformed most of its regional peers, supported by the central bank's split decision to keep benchmark rates at 14.25 percent after markets closed on Wednesday.
Two of the eight-members on the rate-setting committee voted for a 50-basis-points increase, sticking to a view they have supported since November despite economic weakness at home and abroad.
The split vote led traders to trim bets on a rate cut later this year or early next year. Inflation has been running at double-digits, way above the central bank's target range.
"The split decision suggests that the central bank will probably be more conservative in its decisions and wait for a clear inflation slowdown before thinking about rate cuts", UBS analysts wrote in a client note.
Yields paid on short-term yields interest rates futures contracts rose as traders unwound bets that benchmark rates could soon fall. The move came even after data confirmed expectations of a sharp economic contraction last year.
Key Latin American stock indexes and currencies at 1540 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging Markets 778.28 1.19 -3.15 MSCI LatAm 1924.76 1.31 3.82 Brazil Bovespa 45691.46 1.78 5.40 Mexico IPC 44700.57 0.19 4.01 Chile IPSA 3781.34 0.39 2.75 Chile IGPA 18538.17 0.46 2.13 Argentina MerVal 13343.62 0.92 14.29 Colombia IGBC 9531.05 0.76 11.51 Venezuela IBC 16249.52 0 11.39 Currencies daily % YTD % change change Latest Brazil real 3.8514 0.93 2.48 Mexico peso 17.9245 -0.53 -3.87 Chile peso 685.2 0.15 3.58 Colombia peso 3196.94 0.25 -0.87 Peru sol 3.4581 0.98 -1.28 Argentina peso (interbank) 15.5900 0.45 -16.73 Argentina peso (parallel) 15.86 0.25 -10.03 (Reporting by Alonso Soto)