Brazil In Chaos As Rousseff's Impeachment Vote Is Annulled

BRASILIA, May 9 (Reuters) - Brazil's Senate pressed ahead with impeachment proceedings against President Dilma Rousseff on Monday, rejecting a surprise decision by the acting speaker of the lower house to annul a key vote in the process.

The ruling by Senate head Renan Calheiros to push forward put the upper house at odds with the interim leader of the House of Deputies, Waldir Maranhao, who upended the process by announcing Monday he was annulling last month's impeachment vote in the lower chamber.

The Senate's decision raises the possibility that the Supreme Court may have to step in to untangle the constitutional mess. The court, which has been reluctant to intervene decisively in the impeachment process, rejected on Monday some requests to overturn Maranhao's annulment.

Maranhao, who took over the speaker's role only last week, argued in his decision that there were procedural flaws in a lower house vote on April 17 that approved the impeachment charges and the chamber would need to vote again.

His decision, which caught off-guard investors betting on a more business-friendly government taking power imminently, roiled Brazilian financial markets.

However, markets quickly pared their losses as investors bet the move would delay rather than prevent Rousseff's removal from office, given her weak support in Congress.

Calheiros told a plenary session of the upper house that he would proceed with a vote in the Senate on whether to put Rousseff on trial for breaking budgetary laws. A Senate committee recommended on Friday that the president should be tried.

"To accept this playing with democracy would make me personally complicit in delaying this process," Calheiros said. "At the end of the day, it's not for the head of the Senate to say whether this process is fair or not, it's up to the full Senate."

PIVOTAL WEEK IN SENATE

The development further complicates a political crisis that is fueling Brazil's worst recession in decades.

An ongoing investigation into a massive kickback scheme at state-run oil company Petrobras has ensnared dozens of top politicians and seen CEOs from Brazil's biggest construction firms jailed for paying billions in bribes in return for bloated building contracts.

Last week, Rousseff was for the first time caught up in the Petrobras case, when the prosecutor general requested the Supreme Court's permission to investigate her for allegedly obstructing the investigation.

Until Monday's move, it had been widely expected that the full Senate would vote on Wednesday to place Rousseff on trial, which would result in her immediate suspension for up to six months. In that case, Vice President Michel Temer would step in as interim president, remaining in the post until elections in 2018 if she were found guilty and removed permanently.

Rousseff has steadfastly denied any wrongdoing in the Petrobras case or having committed any crime that would warrant her impeachment. She has vowed from the beginning of the impeachment process to fight it by all means legally possible.

It was not clear whether she had any idea that Monday's stunning turn of events was in the works.

'NO LEGAL VALUE'

The bombshell came from the man that last week replaced Eduardo Cunha, the speaker who had launched the impeachment process but was removed by the Supreme Court on corruption charges.

Maranhao had broken with his center-right Progressive Party and voted against impeachment in last month's lower house vote, which Rousseff and her Workers Party had lost badly.

In a statement on Monday, Maranhao said the impeachment process should be returned by the Senate so that the lower house can vote again. Citing irregularities such as party leaders instructing their members which way to vote, he said a new vote would take place within five sessions after the case was returned by the Senate.

"This should have no legal value whatsoever," said Ives Gandra Martins, a constitutional lawyer based in Sao Paulo. "The impeachment process is no longer even in the lower house and there are no grounds ... to annul it.

"The Senate now has the process and will continue to move ahead with it unless they find some reason to vote it down of their own," he said.

Rousseff, speaking at an event in the presidential palace, appeared surprised at the news of Maranhao's move, which came as she was speaking. The crowd broke out into wild cheers, but Rousseff cautioned them.

"It's not official and I do not know the consequences, so let's be cautious," she said to supporters.

(Additional reporting by Maria Carolina Marcello and Paulo Prada; Writing by Brad Brooks and Daniel Flynn; Editing by Frances Kerry and Mary Milliken)