BRASILIA (AFP) - A month after winning re-election, Brazilian President Dilma Rousseff is battling the toughest of starts to her second term with a huge corruption scandal at state-owned oil giant Petrobras threatening to engulf her government.

Investigators are looking into claims by a detained former Petrobras director that politicians, mostly presidential allies, received billions of dollars in kickbacks financed by cash creamed from inflated contracts.

There is no suggestion Rousseff was involved in the money-making scheme and she has vowed to support the wide-ranging investigation.

But analysts warn the scandal is in danger of overshadowing her priorities - top of which are reviving an economy bogged down in recession and cementing welfare advances from her first term, while Brazil is also in desperate need of infrastructure upgrades.

"This is the biggest corruption case in the country's history, its political and economic consequences remain unpredictable," Gil Castello Branco, head of Brazil's Open Accounts transparency watchdog, told AFP.

The alleged payment of nearly four billion dollars in kickbacks to the ruling Workers Party (PT) and other political parties, as well as executives of construction companies and intermediaries, has dwarfed a cash-for-payments scandal of a decade ago.

That first scandal, dubbed "Mensalao" - or monthly stipend - involved cash payments totaling US$50 million (S$65 million) to persuade politicians to back government legislation.

As a result, 25 people, including a clutch of top PT officials, were jailed.

But the snowballing Petrobras case is in an entirely different league.

Just before she secured her election win last month in a bitter run-off, a conservative magazine published allegations by detained former Petrobras executive Paulo Roberto Costa accusing Rousseff - a former Petrobras board chair - of knowing about the kickbacks.

She denied it and vowed Thursday not to interfere with the wide-ranging investigation.

"I do not have, never have had and never will have any tolerance for corruptors or the corrupt. We want the investigation to be total," she said, vowing that "Brazil will emerge much stronger from this process, for having respected the rules of the state of law we live in."

Despite her combative response, new allegations emerge daily regarding a scandal which Costa says saw "political agents," including PT officials and members of coalition allies, receive three percent of the value of over-priced contracts.

Some of his evidence to a judge found its way onto YouTube.

SCANDAL, RECESSION

"The accusations negatively impact expectations regarding the economy," Rafael Cortez, analyst with Tendencias consultancy, told AFP.

"They can affect hoped-for investment in infrastructure," a major second-term challenge for Rousseff with Brazil in dire need of road, port and airport upgrades, Cortez noted, especially with the eyes of the world turning to Rio for the 2016 Olympics.

"If some 70 politicians - senators, lawmakers, governors - are implicated this will surely make life difficult for a government which needs political calm in 2015 to refloat the economy and regain business confidence," said Ricardo Ribeiro of consultancy MCM.

The Petrobras affair comes with the world's seventh-largest economy in recession, facing rising inflation as growth hovers close to zero.

Rousseff has yet to unveil her new cabinet - the market notably awaits a new finance minister it hopes will set a new, less interventionist, course.

POLITICAL WORLD IN SHOCK

When the Petrobras scandal first broke, politicians queued up to deny involvement.

But as more information has emerged following a swathe of arrests of businessmen "the political community has shuddered," says Igor Grielow, columnist with Folha daily newspaper.

Some of those detained in recent days have agreed to cooperate with investigators as they seek a plea bargain agreement - something that is rare in Brazil - to reduce an eventual sentence.

As yet, the dozens detained have not given political names. That will only follow later - probably next year - in the Supreme Court.

"Revealing these names will come at a high cost and ensure the political atmosphere remains febrile," Ribeiro predicted.

In welcoming the investigation, Rousseff can point to previous attempts at squashing political impropriety. When she first took office in 2011, she removed scandal-tainted politicians, including ministers.

But, says Castello Branco, political reality forced her to soften that line as "towards the end of her first term she needed political support to ensure re-election."