June 17 (Bloomberg) -- Brazil's real rose after Brazilian President Luiz Inacio Lula da Silva's chief of staff resigned, allaying concern that a probe of government graft allegations will hobble the government and stunt economic growth.

The real rose to a two-week high after Jose Dirceu, Lula's Cabinet chief, last night said he would step down to return to the lower house for Lula's Workers' Party. The head of Brazil's Labor Party, a member of Lula's ruling coalition, on June 14 testified to a house ethics committee that he informed Dirceu of a bribes-for-votes scheme involving Lula's party. Dirceu said all allegations against him were ``unfounded.''

``The fact Dirceu is going back to the lower house is positive,'' said Alexandre Vasarhelyi, head of currency trading at ING Groep NV's Brazilian unit in a phone interview from Sao Paulo. ``It will take away the focus of the investigations from the executive branch.''

The real rose 0.8 percent to 2.3860 per dollar at 10:17 a.m. New York time from 2.4051 late yesterday, boosting its 2005 gain to 11.2 percent, the best performance against the dollar of the 16 major currencies. It last traded at a stronger level on May 31 at 2.3680 per dollar.

The currency has declined from a three-year high of 2.3650 per dollar reached May 30 since Congress voted to probe allegations that Labor Party President Roberto Jefferson accepted kickbacks from companies seeking to do business with state-run companies.

Graft

Jefferson, in his lower house testimony, said he had informed Dirceu and Jose Genoino, the Workers' Party president, of that the party paid lawmakers to vote for government bills in Congress and that they didn't act on that information.

A Datafolha opinion poll released last night showed that the approval rating of Lula's government was little changed, rising to 36 percent on June 16 from 35 percent in a May 31-June 1 survey, Datafolha said on its Web site. The pollster interviewed 2,124 people in 134 municipalities and the poll had a margin of error of plus or minus 2 percentage points.

The yield on Brazil's benchmark bond that matures in 2040, the most-traded emerging market security, fell for a sixth day to 9.15 percent, lower by 3 basis point, or 0.03 percentage point, from 9.18 percent yesterday, according to JPMorgan Chase & Co. The price rose 0.30 cent on the dollar to 119.30.

Elsewhere in the region, the Mexican peso rose for a sixth day, adding 0.1 percent to 10.7782 per dollar, and earlier rose as much as 0.2 percent to 10.7650 per dollar, its strongest since trading at 10.7610 per dollar on Sept. 24, 2003.

Chile's peso rose for a fifth day, adding 0.6 percent to 580.35 per dollar from 583.75 per dollar late yesterday.

To contact the reporter on this story: Elzio Barreto in Sao Paulo at ebarreto@bloomberg.net

Last Updated: June 17, 2005 10:18 EDT