(Updates prices) By Bruno Federowski SAO PAULO, March 16 (Reuters) - Brazil's currency slid for a third successive day on Wednesday on fears that a Cabinet reshuffle could indicate a shift toward looser fiscal and monetary policy in the crisis-ridden economy. Those concerns were stoked by news that former President Luiz Inacio Lula da Silva will take over as chief of staff for his successor and protégé Dilma Rousseff. The move offers him some protection from a sweeping corruption investigation and gives him time to negotiate with lawmakers who will vote on Rousseff's impeachment. A source told Reuters that central bank chief Alexandre Tombini may step down if Lula's return brings major economic policy changes, although Rousseff later sought to scotch that possibility. Local media reported this week that the government is considering a series of policy changes, including lowering interest rates, boosting the supply of credit and using foreign reserves to reduce debt. Both Lula and Rousseff adopted similar measures over the last decade, something many traders blame for pushing the once-booming economy into its deepest recession on record. Rousseff had promised to implement some austerity measures in her second term in government, but has largely failed to do so in the face of opposition from the ruling Workers Party. "Markets should continue to react unfavorably to the possibility of a policy swing," Guide Investimentos analysts wrote in a client note. Although the news of Lula's appointment was seen as a bad omen for the struggling Brazilian economy, traders said those fears had largely been priced in on Monday. The real nonetheless fell 0.22 percent against the dollar. The Bovespa stock index rose 1.34 percent after the U.S. Federal Reserve bank held interest rates steady on Wednesday and cut the expected pace of future monetary policy tightening. Shares of state-controlled lender Banco do Brasil SA rose 3.37 percent a day after falling more than 20 percent. Political uncertainty kept trade volatile, and Credit Suisse affirmed its "underperform" recommendation for the stock. Shares of Petroleo Brasileiro SA rose 9.38 percent on the back of higher oil prices. Petrobras, as the state-run oil company is known, is the center of a draft probe that has reached key politicians and public figures. In Mexico, the Fed decision helped buoy the IPC stock index , which rose 1.22 percent, while the peso rose 1.54 percent against the dollar. Key Latin American stock indexes and currencies at 21:17 GMT: Latin American market prices from Reuters Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 791.18 0.06 -0.37 MSCI LatAm 1982.30 0.09 8.33 Brazil Bovespa 47763.43 1.34 10.18 Mexico IPC 44751.40 1.22 4.13 Chile IPSA 3861.14 0.26 4.92 Chile IGPA 18916.39 0.23 4.21 Argentina MerVal 12541.58 3.85 7.42 Colombia IGBC 9521.03 0.3 11.39 Venezuela IBC 14776.75 -3.37 1.29 Currencies daily % YTD % change change Latest Brazil real 3.7450 -0.22 5.72 Mexico peso 17.6150 1.54 -2.19 Chile peso 686.2 0.15 3.42 Colombia peso 3159 0.13 0.33 Peru sol 3.3711 -0.50 1.27 Argentina peso (interbank) 14.6000 -0.45 -11.08 Argentina peso (parallel) 15.37 -0.13 -7.16 (Additional reporting by Paula Arend Laier; Editing by David Gregorio, Bernard Orr)
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