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President Rousseff picks close aide as Brazil's new finance minister

Planning minister Nelson Barbosa, a leftist and key supporter of the beleagued president, has been made finance minister. His predecessor stepped down in a row over new austerity measures.

The main Brazilian stock index plunged three percent on Friday, in part due to growing rumors that finance minister Joaquim Levy was to leave his post.

Within hours, the state run news agency reported that Rouseff had picked her close aide Nelson Barbosa to take over the finance ministry, who has regularly sided with the president that the planned public sector cuts were too aggressive.

The outgoing finance chief, Levy had fanned speculation earlier in the day by hinting of his departure at a media conference in the capital Brasilia, without going into too many details. It was not immediately clear if Levy resigned or was asked to leave.

The fiscally conservative minister is believed to have had a series of disagreements with Brazilian President Dilma Rousseff after she watered down his plans for austerity amid the country's economic woes.

Joaquim Levy

Former Finance Minister Joaquim Levy favored harsher measures to reduce government spending

Political crisis worsens

Brazil's gross domestic product (GDP) fell 4.5 percent in the third quarter year-on-year, and the national currency, the real, has dropped one-third against the dollar this year.

Added to the country's deep recession following years of strong growth, Rousseff is fighting for her political future, amid the threat of impeachment. She is accused of watering down Levy's push for austerity, in an apparent attempt to gain support from her leftist allies in Congress

Levy, who had been in his post for less than a year, clashed repeatedly with Rousseff over budget cuts needed to shore up the country's budget. Rumors of his impending resignation have been growing for several months.

Barbosa's appointment is likely to be seen as a return to policies blamed for sinking Latin America's largest economy, namely excessive public spending.

On Wednesday, a second ratings agency, Fitch, downgraded Brazil's public debt to "junk" status, which will make it harder or more expensive for the government to raise financing.

mm/jm (AFP, AP, Reuters)