(Adds audio released, president’s reaction)
By Anthony Boadle and Ricardo Brito
BRASILIA, May 18 (Reuters) - Brazil’s President Michel Temer on Thursday defiantly said he would not resign after the Supreme Court authorized an investigation into allegations he condoned bribes to a potential witness in a major corruption probe.
The investigation raised the possibility Brazil could see a second president fall in less than a year and sent Brazilian financial markets tumbling on doubts Congress would pass Temer’s ambitious austerity agenda.
In a terse five-minute speech broadcast nationwide, Temer said he had done nothing wrong, that his presidency was helping turn around Brazil’s stalled economy and he welcomed an investigation so that he could prove his innocence.
“I did not buy the silence of anyone,” Temer said, referring to the allegations made against him. “I will not resign.”
A Supreme Court justice approved the investigation on Thursday based on plea-bargain testimony and an audio recording in which Temer allegedly conspired to obstruct justice with Joesley Batista, chairman of the world’s largest meatpacker, JBS SA, according to a report in the O Globo newspaper.
When the audio recording was released to the public on Thursday it did not appear to contain any explosive proof that Temer committed a crime.
It was, however, just one piece of evidence Batista has offered prosecutors, with more to be released soon.
After listening to the recording, a spokesman for Temer said the president was more resolute than ever to fight the investigation and salvage his deeply unpopular presidency.
He said the tape proved he had not approved bribing the witness, former lower house speaker Eduardo Cunha. A one-time Temer ally, Cunha was convicted on corruption charges relating to Brazil’s sweeping graft probe known as Operation Car Wash. The jailed politician’s testimony could reportedly implicate scores of politicians, including the president.
“There is no agreeing with payments for Eduardo Cunha,” Marcio de Freitas, a spokesman for Temer said of the tape.
Still, the fact Supreme Court justice Edson Fachin, who has seen all the evidence Batista has presented, approved the Temer investigation, suggested there could be more material to come that could directly implicate the leader.
Protests calling for Temer’s resignation broke out in several cities Thursday, most attracting a few hundred people. Activists from across the political spectrum called for large protests this weekend.
The hush money allegations have plunged Brazil back into political turmoil less than a year after Temer played a key role in the impeachment of his predecessor, former President Dilma Rousseff.
Rousseff accused Temer of carrying out a “coup” to impede the Car Wash probe, in which more than 90 leading business and political figures have been convicted so far.
Brazil’s Bovespa stock index lost 9 percent, its steepest fall since the 2008 financial crisis, on concerns the probe could derail Temer’s fiscal reforms.
Shares of state-controlled companies, such as Banco do Brasil SA and Centrais Elétricas Brasileiras SA, or Eletrobras, lost about a fifth of their value, and the nation’s currency fell 7.5 percent, wiping out its gains for the year.
Brazil’s Treasury and central bank said they stood ready to keep markets liquid before acting to smooth volatility in local currency and bond markets.
Federal police, meanwhile, closed in on Temer allies as they intensified their three-year corruption probe.
Dozens of leading lawmakers and a third of Temer’s cabinet are under investigation over billions in political kickbacks paid by Brazil’s biggest construction companies in exchange for contracts at state-run oil producer Petrobras and other government enterprises.
Officers in the southern city of Curitiba searched the home of federal deputy Rodrido Rocha Loures, a longtime confidant of Temer and a member of the president’s party.
Authorities released photos of Loures receiving 500,000 reais from a JBS employee, though Loures denied any wrongdoing.
JBS, which grew rapidly under 13 years of leftist Workers Party rule due largely to low-cost loans from Brazil’s national development bank, on Thursday said in a statement that seven of its executives, including Batista, had reached plea bargain deals with prosecutors.
Temer, whose government has a 9-percent approval rating, had already been named in plea bargain testimony for negotiating millions in illegal campaign funding, which he denies.
If Temer is eventually forced to resign or is impeached, Brazil’s constitution calls for the leader of the lower house to temporarily take over and for Congress to name a successor within 30 days.
But with so many lawmakers under investigation for corruption, there are widespread calls for the constitution to be changed to allow for direct elections immediately.
Also on Thursday, federal prosecutor Rodrigo Janot asked the Supreme Court’s permission to arrest Senator Aecio Neves on allegations he asked Batista for bribes. The Supreme Court suspended Neves from the Senate.
A key government ally, Neves lost the 2014 presidential election against Rousseff.
Reporting By Anthony Boadle, Ricardo Brito, Alonso Soto and Lisandra Paraguassu in Brasilia, Brad Brooks and Bruno Federowski in Sao Paulo and Pedro Fonseca in Rio de Janeiro.; Writing by Brad Brooks; Editing by Lisa Von Ahn and Andrew Hay