Brazil's Rousseff backs aide in scandal

Brazilian presidential Chief of Staff Antonio Palocci attends a ceremony in which President Dilma Rousseff announced the inclusion of diabetes and hypertension drugs as part of their program to provide medicine to the poor, in Brasilia February 3, 2011.

BRASILIA (Reuters) - Brazilian President Dilma Rousseff defended her embattled chief of staff on Thursday, saying he would fully explain himself in a scandal over his alleged lobbying activities.

For nearly two weeks Antonio Palocci has been under pressure to explain media reports that he increased his wealth 20-fold as a consultant to businesses during his tenure as federal deputy in the Brazilian Congress from 2007 to 2010.

"I want to assure you that Minister Palocci is giving all necessary explanations to audit agencies," Rousseff told reporters after a public ceremony in the capital Brasilia.

The federal public prosecutor has demanded that Palocci provide details on contracts with clients of the consulting firm that he ran while serving in Congress.

Palocci, the government's chief power broker and a key economic policymaker, has denied any wrongdoing and said his income was fully documented in tax returns.

With her overwhelming majority in Congress, Rousseff has managed to defeat attempts by opposition parties to summon Palocci to testify. But she is still trying to quell efforts to install a formal congressional inquiry that would give opposition leaders a public platform to attack her administration.

Rousseff's first public comments regarding the scandal coincide with fresh accusations by the opposition PSDB party that Palocci helped one of his clients to obtain a tax rebate from the federal government.

"The tax reimbursement ... has nothing at all to do with manipulation," Rousseff rebutted. "I regret that a case like this is being politicized."

Palocci quit as finance minister under former President Luiz Inacio Lula da Silva in 2006 because of a separate ethics scandal.

Rousseff's decision to publicly come out in defense of Palocci follows a meeting earlier this week with Lula, her mentor. Lula had warned Rousseff and Palocci of the severity of the scandal and told them to mend relations with disgruntled allies to help deflate it, local media reported on Thursday.

Lula survived several scandals involving close allies and his own Workers' Party during his eight years in office and came to be seen as a savvy political operator. He left office on January 1 with a near 80 percent approval rating.

(Reporting by Hugo Bachega; Writing by Raymond Colitt; Editing by Sandra Maler and Eric Beech)