Sept. 2 (Bloomberg) -- Brazilian federal police seized documents and electronic data from Banco Rural, whose loans to the governing Workers' Party are under investigation by congress, as part of a raid of several companies in two states.

Belo Horizonte, Brazil-based Rural said in a statement it handed over all documents requested by investigators and created a special group of 70 employees solely dedicated to assisting authorities.

``Timely cooperation and transparency are demands bank directors have adopted as parameters for its relationship with authorities,'' Rural said in a statement.

The police raid was part of an investigation by federal police, central bank regulators and lawmakers into whether Rural accepted improper guarantees for some loans and took part in an alleged scheme by President Luiz Inacio Lula da Silva's Workers' Party to pay bribes.

Federal police raided 18 locations in two states today as part of the investigation, according to a press officer in Brasilia.

Rural said earlier this week it would close branches and cut staff in a bid to restore its credibility after deposits fell by about half in the first six months from the same period last year. The bank, which lends mostly to small and mid-sized companies, also hired former central bank President Gustavo Loyola and ex- central bank directors Paulo Zaghen and Nelson Carvalho to help the bank review its loan policies.

Loss

Rural posted a 129.7 million reais ($54 million) loss in the first six months of the year after setting aside more money to cover bad loans, including some to Lula's party. The bank's deposits fell as clients grew concerned about last year's failure of Banco Santos SA and the congressional probe into alleged graft by Lula's party and government, Executive Director Joao Herald said in an interview Aug. 31.

Rural is Brazil's 24th-largest bank with 4.4 billion reais in assets, 79 branches and 1,800 employees.

Moody's cut Rural's outlook on its B1 foreign currency debt rating on Aug. 5 to negative from positive, after five of the bank's directors were charged by federal prosecutors in connection with alleged illegal money transfers to offshore accounts between 1996 and 2000. Fitch Ratings lowered the bank's local and foreign currency ratings on July 28, citing concern about its ``image deterioration.''

The Workers' Party said Aug. 17 some members may have broken electoral laws without the knowledge of the party's leadership. The party, in several statements since June, has denied bribing lawmakers in exchange for votes in Congress.

To contact the reporter on this story: Andrew J. Barden at barden@bloomberg.net

Last Updated: September 2, 2005 16:42 EDT