UPDATE 3-Brazil graft probe targets head of Bolsonaro's PSL party -source

Brazilian police launched a corruption probe on Tuesday into the head of President Jair Bolsonaro's right-wing Social Liberal Party (PSL) Luciano Bivar, a police source told Reuters, adding to tensions within the fractious governing coalition. The widening investigations into the PSL's alleged campaign finance fraud, which have already resulted in charges against the tourism minister, threaten to muddy Bolsonaro's anti-graft message and slow progress on his economic agenda.

In a statement on Tuesday, federal police said they were investigating whether representatives of a political party had concealed transfers of party funds in the state of Pernambuco. According to the source, who spoke on condition of anonymity to disclose details of the operation, PSL is the party under investigation and police were executing nine search and seizure warrants in addresses related to PSL president Bivar.

A lawyer for PSL and Bivar said in a statement that "there is no evidence of fraud in the electoral process," adding the probe started 10 months ago and several witnesses had testified. Riding Bolsonaro's coattails in last year's election, PSL politicians made it the second-largest party in the lower house of Congress. Yet the campaign finance scandal has added to infighting in a party packed with political newcomers.

Tuesday's probe comes amid a public spat between the president and Bivar, with Bolsonaro threatening to leave the party. Last week, Bolsonaro and PSL lawmakers dissatisfied with Bivar requested information on the party's finances.

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