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Antonio Palocci, former finance minister and presidential chief of staff in recent Workers Party (PT) governments, arrives at the Institute of Forensic Science in Curitiba, Brazil, September 26, 2016. REUTERS/Rodolfo Buhrer


BRASILIA (Reuters) - Former Brazilian Finance Minister Antonio Palocci entered talks with federal police to strike a plea bargain deal, in a potential blow to former President Luiz Inácio Lula da Silva's chances of running in next year's election, newspaper Folha de S.Paulo said on Tuesday.

Palocci, one of the closest advisers to Lula and former president Dilma Rousseff between 2003 and 2011, has been in jail since September of last year on charges that he ran a bribery scheme that funnelled money to the former-ruling Workers Party's (PT).

Folha said, without citing sources, that Palocci had a first meeting with investigators two weeks ago to discuss the terms of a possible collaboration. He would present evidence against Lula and other senior members of his party, Folha said.

Several polls show Lula as the favourite in voting intentions for the 2018 presidential election, but he could be barred from running if sentenced for corruption. Lula already faces five court cases related to the investigations.

A plea bargain testimony by Palocci, once one of Brazil's most powerful politicians, could also add fuel to the country's political and economic turmoil by widening the scope of the so-called Car Wash investigation, currently focused on engineering firms, to include banks and large corporations, Folha said.

Palocci's lawyer, José Roberto Batochio, did not respond immediately to a Reuters request for comment. He has previously denied his client had taken any bribes.

Federal police did not comment.

Growing speculation about a Palocci collaboration comes one week after details of a plea bargain deal by executives of engineering firm Odebrecht SA [ODBES.UL]rocked Brazilian politics by implicating dozens of lawmakers, eight ministers and President Michel Temer.

Odebrecht executives named Palocci as the intermediary for alleged bribes paid to Lula, an accusation which Lula and his lawyers have repeatedly denied.

Palocci, a medical doctor by training, was Lula's finance minister and a key player in the 2002 election campaign that put the Workers' Party leader in the presidential seat.

Palocci helped Lula change his image from leftist radical into a business friendly and socially progressive leader who finally secured election on his fourth bid.

He also served as chief of staff to Lula's hand-picked successor, Dilma Rousseff, ousted in an impeachment last year.

(Reporting by Silvio Cascione; Editing by Bernard Orr)

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