RIO DE JANEIRO (AFP) - Shares in Brazilian oil giant Petrobras plunged Friday as banking executive Aldemir Bendine, who is seen as close to President Dilma Rousseff's party, was named the scandal-hit firm's new chief executive.

Petrobras, the largest company in the world's seventh-largest economy, has been thrown into crisis by allegations that executives colluded with construction firms to steal US$4 billion (S$5.4 billion) from its coffers, with some of the cash being paid out in bribes to politicians - including members of Rousseff's coalition.

Petrobras shares fell nearly 8 per cent on the Sao Paulo stock exchange after initial media reports - later confirmed by the company - that Bendine would take the helm, as investors registered disappointment that the post would not go to an apolitical technical expert.

The stock was down 7.35 per cent in afternoon trade.

Bendine, 51, is currently the chief executive of state-controlled Banco do Brasil.

He has said he is not affiliated with any political party, but is seen as close to Rousseff's Workers' Party (PT) and her predecessor and mentor, Luiz Inacio Lula da Silva.

He has spent 32 years at Banco do Brasil, the largest bank in Latin America, where he started out as a 14-year-old intern and rose through the ranks to become CEO in 2009.

"Bendine is a career Banco do Brasil professional, a trusted ally of ex-president Lula. So his appointment maintains the political connection with the PT, which the market didn't like," said economist Eduardo Velho of consultancy INVX Global.

"The market was hoping for someone with more ties to the private sector," he told AFP.

DEVASTATING WEEK

Ex-CEO Graca Foster resigned Wednesday over the scandal along with her entire board of directors.

She had weathered the kickback allegations for nearly a year with Rousseff's backing, but her position grew increasingly untenable as Petrobras repeatedly delayed the release of its third-quarter results.

They were finally published last week, but without undergoing an external audit or stating the company's losses due to corruption.

That kicked off a devastating week in which the company was downgraded by two ratings agencies and lost nearly US$9 billion in stock value.

The state-controlled firm's new chief executive will have to "isolate himself from the political crisis" and "rescue the company's credibility with the markets," said Edmar Fagundes de Almeida, an energy economist at Rio de Janeiro Federal University.

"The market wants to know what the company's real situation is, how much it lost to corruption," said Lauro Vilares, technical analyst at brokerage firm Guide Investimentos.

"And it's important that it undergo an external audit to corroborate the numbers." Petrobras has also been hit hard by tumbling oil prices, a separate controversy over its US$792 million loss on the purchase of a refinery in Pasadena, Texas, and an investigation of the kickbacks scandal by the Securities and Exchange Commission in the United States, where the company is also listed on the New York stock exchange.

DANGEROUSLY CLOSE TO PRESIDENT

The scandal has meanwhile spread dangerously close to Rousseff, who was sworn in for a second four-year term on Jan 1.

Rousseff chaired the Petrobras board from 2003 to 2010, during much of the period under investigation.

On Thursday, the treasurer of the Workers' Party, Joao Vaccari Neto, was detained for questioning in the graft probe before being released after several hours.

Brazilian media reports say suspects arrested in the investigation have told police that Vaccari funnelled illicit cash from Petrobras to the party.

The oil firm's former engineering chief, Pedro Barusco, reportedly told investigators that the party received between US$150 million and US$200 million skimmed off the 90 largest Petrobras contracts from 2003 to 2013, and that Vaccari "participated" in the scheme.

Vaccari's lawyer said his client had always acted in "absolute compliance with the law."

The Workers' Party also rejected allegations of wrongdoing.