(Adds Reuters report on potential asset sales starting in third paragraph.)
By Alberto Alerigi and Bruno Federowski
SAO PAULO, May 23 (Reuters) - Shares in Brazilian meatpacker JBS SA stormed higher on Tuesday, helped by bargain-hunting and speculation about potential takeover interest, after earlier falling on concern about the company's role in a corruption scandal.
The billionaire Batista brothers who control JBS through holding company J&F Investimentos SA have admitted to bribing politicians in a case that has sparked calls for the resignation of Brazilian President Michel Temer.
Reuters reported after the market closed that JBS and J&F had hired Banco Bradesco SA's investment bank to work on a plan to sell several assets. J&F denied the report, while JBS declined to comment.
The proceeds of such asset sales could help ease the fallout for JBS and J&F from a potentially pricey settlement of the bribery allegations and a series of other related probes that have spooked investors in recent days.
J&F has so far refused to pay an 11.2 billion real fine sought by prosecutors, but talks are continuing. Joesley Batista, 44, transformed the group from a regional slaughterhouse to a multinational with assets in Europe, Australia and the United States - many acquired with help from government funds.
Earlier on Tuesday, JBS shares were lifted by bargain-hunting as well as market speculation about the company potentially attracting takeover interest after the shares lost a third of their value over the past week.
"Every stock that suffers a beating has to take breather at some point," trader Marcelo Garbes at Tullett Prebon brokerage said. "Still, most traders will want nothing to do with that share as long as uncertainty remains so high."
JBS's legal woes have raised expectations it will be "a significant amount of time" before JBS, the world's No. 1 meat processing company, is able to carry out a planned initial public offering of its U.S. subsidiary, said Gimme Credit analyst Cedric Rimaud in a research note.
Fitch on Monday cut its rating to BB from BB+, citing the magnitude of the deal signed with prosecutors by the brothers and its potential impact on funding sources.
JBS had 17.9 billion reais ($5.46 billion) in short-term debt and 10.7 billion reais in cash as of March 31, Fitch said, noting that the company's net leverage was "weak for the rating category."
The Fitch move followed a similar one by Moody's earlier on Monday.
If they need to raise money to pay a settlement, the Batista brothers could consider selling shares in JBS, their most liquid asset, BTG Pactual analysts Thiago Duarte and Vito Ferreira said in a research note.
Another potential funding source is JBS's 78.5 percent stake in U.S. chicken producer Pilgrim's Pride Corp, which is owned by JBS, the analysts said.
As part of its advisory role, Reuters reported that Banco Bradesco is trying to decide whether to sell Alpargatas SA, the maker of Havaianas flip flops that J&F acquired in 2015, as well as its dairy company Fábrica de Produtos Alimentícios Vigor SA, and analyzing potential sales of JBS's assets.
Separately on Tuesday, Alpargatas said in a statement that Joesley Batista had resigned from its board, without disclosing a reason.
In a related development, a central bank source said the liquidity of Banco Original, a lender that is also controlled by J&F, is solid, and that it has placed an analyst inside the bank to speed up obtaining answers to prosecutors' questions about the bribery scandal.
JBS and its owners also face legal jeopardy on other fronts, wrote Santander Investment Securities analyst Ronaldo Kasinsky in a research note.
These include ongoing probes from prosecutors, regulators and lawmakers into potential insider trading in currency futures and JBS shares as well as help the group got from state development bank BNDES.
Brazilian markets regulator CVM said on Tuesday it was launching two new probes, one related to whether the Batistas had complied with their fiduciary duty as owners and executives of JBS and another regarding market disclosures about vehicles that are part of their controlling group.
Those came in addition to four previous investigations into insider trading dealings the CVM disclosed last week.
Kasinsky said he would recommend avoiding JBS shares "until we have more clarity on the final outcome from the leniency agreement," using a term which refers to the plea bargain deal. ($1 = 3.2755 reais)
Reporting by Alberto Alerigi Jr. and Bruno Federowski, writing by Silvio Cascione; editing by Christian Plumb, Andrew Hay and Lisa Shumaker