Brazil markets jump on prospect of Lula in jail, out of 2018 race

BRASILIA, April 5 (Reuters) - Brazilian financial markets rallied on Thursday on a Supreme Court decision clearing the way to jail convicted former President Luiz Inacio Lula da Silva, likely blocking the leftist from a presidential campaign in which he is polling as a front-runner.

The prospect of an October election without Lula boosted Brazil's currency nearly 1 percent higher and lifted the benchmark Bovespa stock index 2 percent as investors bet that a market-friendly centrist or center-right candidate will win the presidency.

Supporters camped out around the home of Brazil's first working-class president while his closest allies huddled to reassemble a political strategy shattered by his corruption conviction.

Lula's lawyers, who call the case against him a political witch hunt, have few legal maneuvers left in the lower appeals court where he was sentenced for taking bribes in Brazil's biggest corruption scandal. Lula, who served two four-year terms as president from 2003 to 2011, is likely to be jailed within one week.

The Workers' Party has refused to openly discuss an alternative to nominating Lula to run, making it harder for the left to retake power despite the record unpopularity of center-right President Michel Temer in opinion polls.

Lula was found guilty in August and sentenced to 10 years in prison for accepting bribes worth 3.7 million reais ($1 million) from engineering firm OAS, the amount of money prosecutors said OAS spent refurbishing a beach apartment for Lula in return for his help winning contracts with state-run oil company Petroleo Brasileiro SA.

Lula's conviction was upheld on a first appeal. Under Brazilian electoral law, a candidate is forbidden from running for elected office for eight years after being found guilty of a crime. Exceptions have been made before, and the final decision in Lula's case would be made by the top electoral court if and when Lula officially files to be a candidate. (Reporting by Anthony Boadle; Editing by Brad Haynes and Grant McCool)