Brazilian finance minister quits

Brazil's currency fell on fears of Mr Palocci's departure

Brazil's Finance Minister Antonio Palocci - an ally of President Luiz Inacio Lula da Silva - has resigned in the wake of corruption claims.

He will be replaced by Guido Mantega, the president of Brazil's national development bank.

Earlier this month allegations emerged that Mr Palocci had visited a mansion in Brasilia where government bribes were divided and prostitutes met.

He denies setting foot in the house but has struggled to shake off the claims.

Mr Mantega vowed to continue with the policies of his predecessor.

"Economic policy won't change," he told a televised news conference. "It is not the economic policy of one minister, it is the policy of President Lula."

Economic recovery

Fears of Mr Palocci's departure earlier helped knock 2% of the value of Brazil's currency, the real, during Monday trading.

The recent claims are part of a wider series of allegations of illegal campaign funding and vote buying by Brazil's ruling Worker's Party (PT).

Last November, Mr Palocci had to defend himself against charges of accepting illegal payments while serving as mayor of Ribeirao Preto, in Sao Paulo state, from 1993-1996 and 2001-2002. His resignation comes as campaigning is about to begin for a presidential election in October, with President Lula expected to run for a second term.

"I think his departure was inevitable," said Francois Dossa, president of Societe Generale Do Brasil.

"I don't think this will cause stress for the economy."

Mr Palocci has been described as one of the architects of Brazil's economic recovery, which has seen foreign investment rise, unemployment fall and inflation brought under control.