UPDATE 1-Brazil inquiry targets Oi, Vivo over deals linked to Lula's son

Brazilian authorities widened a political graft investigation to target telecom firms Oi and Telefonica Brasil on Tuesday over alleged irregular payments to a company part-owned by the son of ex-president Luiz Inacio Lula da Silva.

Oi SA, formerly known as Telemar, and Telefonica Brasil SA, which operates under the Vivo brand, said in statements that they were cooperating fully with authorities. A lawyer for Lula declined to comment and it was not immediately possible for Reuters to locate a representative for his son Fábio Luis Lula da Silva.

Police said the latest phase of the investigation, involving 47 search and seizure warrants, was based on an earlier inquiry into former leftist leader Lula, who was found guilty of bribery in a separate case but last month left jail while appealing. Prosecutors said that Oi paid more than 132 million reais ($32 million) between 2004 and 2016 to firms in the Gamecorp/Gol group for services they were ill-equipped to provide. They said former president Lula's son was part of the controlling ownership group behind Gamecorp/Gol.

"The evidence shows that these payments ... were made without any reasonable economic justification, at the time when the Oi/Telemar group benefited from various decisions from the federal government," the prosecutors said in a statement, citing receipts, emails and bank details. They also said they were looking into alleged irregularities surrounding the transfer of some 40 million reais to Editora Gol from a Telefonica subsidiary between 2014 and 2016.

Preferred shares in Oi fell as much as 4.8% to 1.18 reais in early Sao Paulo trading, while preferred shares in Telefonica Brasil fell as much as 2.8% to 55.32 reais.