(Adds comment by police investigator; adds comment on reason for share rise; adds BNDES calling for picking new CEO; adds detail on other detention orders)
SAO PAULO, Sept 13 (Reuters) - Brazil's federal police on Wednesday detained the chief executive of JBS SA, the world's No. 1 meatpacker, saying he used insider information to avoid hefty losses related to a plea bargain he signed earlier this year.
Wesley Batista, who has been at the helm of JBS since 2011, was detained under an arrest warrant against him and his younger brother Joesley for suspected insider trading. The billionaires, both in their mid-40s, control 42 percent of JBS.
Their lawyer, Pierpaolo Bottini, called the allegations and the arrest "unjust, absurd and regrettable." If convicted, the Batistas may be the first people in Brazil jailed for insider trading.
JBS shares rose 1.7 percent, reversing early losses, on optimism that Wesley Batista's arrest will accelerate a search by the company to replace him as chief executive. The accusations could hurt a plea deal that both brothers signed in May in relation to a three-year graft probe that has shocked Brazil's political and business establishment.
The insider trading case involving JBS follows probes by markets watchdog CVM on trades that took place before the plea deal was leaked to the press on May 17. The impact from the leak, which ensnared senior politicians, led to Brazil's worst financial market selloff in at least a decade.
According to police investigators, the Batistas were aware of the market impact that their plea deal would have on JBS shares and the currency. Police said the brothers created a strategy to protect their JBS holding and help the company amass large foreign-currency positions ahead of the leak.
On May 18, the stock shed 9.7 percent, while the Brazilian real tumbled 8.2 percent - its biggest daily decline since January 1999.
"A day ahead of the leaks, JBS rose to the No. 2 spot in currency purchases, an unheard of fact," police investigator Rodrigo de Campos Costa said in a news conference.
BNDES CALLS FOR NEW CEO
The detention of Wesley Batista comes as his plea deal with prosecutors is unraveling due to alleged omissions in the brothers' testimony. Some minority shareholders were already seeking to remove him.
"It is not every day that a CEO getting arrested for insider trading can be viewed as a credit positive, but we see the latest events as weakening Batista's push to remain as CEO," analysts at CreditSights Inc wrote in a note to clients.
The yield on the company's 7.75 percent bond due in October 2020 rose about 0.17 percentage point to 7.966 percent on Wednesday.
Joesley Batista has been under arrest since Sunday after recordings suggested he tried to take advantage of prosecutors and conceal details during negotiations that led to the plea deal. He has denied any wrongdoing.
In their testimony, the brothers accused President Michel Temer of working to obstruct a corruption probe, which the latter has repeatedly denied. The family's investment holding company, J&F Investimentos SA, paid a record leniency fine of 10.3 billion reais ($3.3 billion) related to the scandal.
Since the plea bargain deal was signed on May 31, Temer and the Batistas have traded barbs - taking their rift to corporate boardrooms. State development bank BNDES, whose investment arm owns 21 percent of JBS, is leading the group of JBS investors seeking to oust the Batistas from the company's management and board.
In a statement, BNDES said the company should pick a new chief executive officer in the next shareholders meeting.
Bottini, the Batistas' lawyer, earlier in the day, said: "The Brazilian state is using all means to promote revenge against those who cooperated with justice."
The police said two detention orders were also issued against executives at the Batista family-owned FB Participações SA and JBS, without elaborating.
The scheme helped "manipulate markets in a way that all shareholders incurred some of the losses that FB Participações would have otherwise had to absorb alone," a police statement said.
($1 = 3.13 reais) (Additional reporting by Pedro Fonseca in Rio de Janeiro and Tatiana Bautzer in São Paulo; Editing by Daniel Flynn and Leslie Adler)