By Ricardo Brito
BRASILIA (Reuters) - A Brazilian Supreme Court judge on Monday annulled the criminal convictions against former leftist President Luiz Inacio Lula da Silva, a move that could allow the popular politician to run in next year's presidential election.
The decision roiled financial markets and scrambled forecasts for the 2022 race, with many investors betting it would polarize voters between President Jair Bolsonaro, a far-right populist, and Lula, his greatest opponent on the left.
In a surprise decision, Justice Edson Fachin said that a court in the southern city of Curitiba did not have the authority to try Lula on corruption charges and that he must be retried in federal courts in the capital Brasilia.
The office of Brazil's prosecutor general said it will appeal the decision, which will also be reviewed by the full Supreme Court.
Brazil's real sank around 1.5% to a fresh four-month low after the news and the Bovespa stock index fell 3%. The real closed at 5.7779 per dollar, its weakest since May last year.
Financial analysts said the prospect of Lula candidacy would likely drive Bolsonaro to abandon economic reforms he ran on in 2018 and further embrace populist measures to shore up support.
"With Lula eligible, the chance of this current government going totally towards populism increases even more," said Alfredo Menezes, managing partner at Armor Capital.
Lula governed Latin America's most populous country and largest economy between 2003 and 2011, overseeing a commodities boom that turbocharged economic growth.
In 2018, he was convicted of taking bribes from engineering firms in return for public contracts and spent a year and a half behind bars, until the Supreme Court ruled he and others could appeal their cases without serving time.
Lula has maintained his innocence and said the case against him was politically motivated. His conviction had prevented him from running for another presidential term.
The charismatic former union leader is a polarizing figure but still beloved by much of Brazil’s working class for bringing millions out of poverty through generous social welfare programs.
Lula is the only one of 10 potential 2022 candidates who outperformed Bolsonaro in a survey by polling company Ipec, published in newspaper O Estado de S.Paulo last week.
It found that 50% of the 2,002 people it interviewed "would certainly" or "could" vote for Lula, compared with 38% for Bolsonaro. Some 44% of respondents said they would never vote for Lula, while 56% would never vote for Bolsonaro, the poll found.