Brazil's Senate probes Petrobras on alleged fraud

BRASILIA May 15 (Reuters) - Brazil's Senate launched an investigation on Friday into alleged tax and procurement fraud at state-owned oil company Petrobras (PETR4.SA)(PBR.N).

The inquiry will investigate indications of fraud in the procurement of oil platforms, the construction of an oil refinery in the northeastern city of Recife and in the use of sponsorship funds.

It will also probe the alleged embezzlement of royalties and accounting "tricks" to dodge as much as 4 billion reais ($1.91 billion) in taxes, senators backing the inquiry said.

Congressional inquiries are often more political than investigative in nature. Numerous Petrobras officials are expected to have to testify in the committee in coming weeks.

Petrobras shares fell 1.9 percent in afternoon trading to 31.15 reais.

The company denies any wrongdoing, and said it always acted within the law and with transparency and respect for Brazilian society.

The allegations are based on investigations by the federal police and public prosecutors and were published in local media this week.

President Luiz Inacio Lula da Silva called the inquiry irresponsible and unpatriotic at a time when the country faced a global economic crisis and tried to raise financing to develop large new oil reserves.

"I don't think there's any irregularity," Lula told reporters before traveling to Saudi Arabia on Friday.

Petrobras Chief Executive Jose Sergio Gabrielli warned on Thursday that a congressional inquiry would have very serious consequences for the company.

The inquiry was called for by the opposition Brazilian Social Democracy Party, or PSDB, which governed the country between 1995 and 2002. It was approved with 32 votes, five more than necessary.

The PSDB is likely to field the main opposition candidate in next year's presidential elections.

Lula bounced back from a corruption scandal involving his ruling Workers' party in 2005 and even toward the end of his second term remains the most popular president in Brazil's recent history. (Writing by Raymond Colitt)