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Brazil's president reeling after hush money claim

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Brazil's President Michel Temer reeled Thursday from a report that he authorised payment of hush money to a jailed politician in a scandal threatening to plunge Latin America's biggest country into political meltdown.

[BRASILIA] Brazil's President Michel Temer reeled Thursday from a report that he authorised payment of hush money to a jailed politician in a scandal threatening to plunge Latin America's biggest country into political meltdown.

Markets plummeted on opening as investors reacted to the crisis, as well as turmoil around US President Donald Trump, with fears that Mr Temer's centre-right government will be hamstrung in its attempt to push through austerity reforms.

Demands for Mr Temer's impeachment and new elections sprang up from opposition lawmakers, while small crowds appeared in Sao Paulo and Brasilia overnight shouting: "Temer out." In another blow for the veteran leader of the PMDB party, the prosecutor general asked for authority to arrest his key ally Senator Aecio Neves from the PSDB party on bribery charges.

The Supreme Court suspended Mr Neves and was to decide later on his arrest. Officers could be seen entering Mr Neves' property in Rio de Janeiro and his sister Andrea was arrested in Belo Horizonte.

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The crisis leaves Mr Temer, 76, facing two immediate problems.

The first is his own political survival, and the second is the survival of the reforms which he says are needed to whip Brazil's floundering economy back into shape after two years of recession.

Mr Temer's office announced that he was cancelling his previously scheduled back-to-back meetings with party leaders. Brazilian media reported that he could make a public statement.

Mr Temer, who took over after the impeachment last year of Dilma Rousseff, was reported late Wednesday by O Globo newspaper to have been secretly recorded agreeing to payments of hush money to Eduardo Cunha, the disgraced former speaker of the lower house of Congress.

According to the report - which Mr Temer immediately denied in a written statement - the president discussed the matter with Joesley Batista, an executive from the meatpacking giant JBS, on March 7.

Mr Batista told Mr Temer that he was paying money to make sure that Cunha - thought to have encyclopaedic knowledge of Brazil's notoriously dirty political world - would keep quiet while serving his sentence for taking bribes.

According to the account, Mr Temer told Mr Batista: "You need to keep doing that, OK?" Mr Temer's office issued a statement saying: "President Michel Temer never solicited payments to obtain the silence of former deputy Eduardo Cunha." Globo did not say how it got the information about the recording, which it said was offered in a plea bargain between Mr Batista and his brother Wesley with prosecutors. The columnist who reported the bombshell claims clarified on Thursday that he had not personally heard the recording, but that it was described to him "in the most detail possible".

A separate secret recording made by Mr Batista allegedly caught Mr Neves asking him for a bribe of two million reais, or around S$897,500.

The scandal is the latest shockwave from the "Car Wash" graft probe ripping through Brazilian politics.

Investigators have uncovered a massive scheme in which politicians took bribes in exchange for getting big businesses over-inflated contracts with state oil company Petrobras. The bribery and embezzlement then rippled far beyond, pulling in many of the country's most famous executives and leaders.

Former president Luiz Inacio Lula da Silva, a leftist icon for many in Latin America, faces five corruption trials, while a third of the Senate and a third of Mr Temer's own cabinet are under investigation.

Until now Mr Temer has managed to stay above the fray.

Although alleged to have participated in large-scale bribery deals, he cannot be prosecuted for crimes prior to his mandate. The Globo revelations, if confirmed, would leave him far more vulnerable.

Even before the latest crisis, Mr Temer was mired in controversy.

Rousseff and her leftist allies accuse him of having engineered her impeachment and his rise to power last year in what they say amounted to a coup d'etat.

Rousseff, from the leftist Workers' Party, was found guilty by Congress of having illegally manipulated government accounts to hide the true extent of Brazil's financial woes. However, many of her accusers in Congress - especially Cunha, who is also from the PMDB - faced their own ethical and legal problems.

Despite getting the top job, Mr Temer has since struggled against repeated jibes that he lacks legitimacy.

He dismisses his rock bottom popularity ratings, saying that as an unpopular president due to be in office only until the next scheduled elections in October 2018 he is free to push ahead with the painful austerity reforms the country needs.