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UPDATE 2-Brazil's Temer urges court to end uncertainty overshadowing growth

(Adds Temer comments)

By Daniel Flynn

SAO PAULO May 29 President Michel Temer urged Brazil's top electoral court to decide quickly on a case alleging illegal funding of his 2014 campaign in order to lift political uncertainty overshadowing a recovery in Latin America's largest economy.

Helped by bumper soy and corn harvests, Brazil's economy eked out growth in the first quarter following its most painful recession in more than a century, senior officials said on the eve of an investment summit in Sao Paulo.

Finance Minister Henrique Meirelles on Monday told reporters the economy likely grew by around 0.7 percent in the first quarter versus the previous one, with the incipient recovery evident in several sectors of the economy.

However, the minister said growth probably sagged in the second quarter. Uncertainty over the government's reform agenda and a broadening graft scandal was capped this month by plea bargain deals by executives at meatpacking company JBS who accused Temer of endorsing the alleged bribery of a potential witness in a corruption probe.

Temer has denied any wrongdoing and said he will fight the allegations.

Speaking to a small group of foreign journalists on Monday, Temer said that declining inflation, falling interest rates and rising investment in the first quarter showed that Brazil's underlying economy was increasingly robust.

"This crisis is more political than economic," he said, adding that his government would press ahead with reforms to ease labour market conditions and raise the pension age.

Sources within Temer's coalition, however, told Reuters in recent days they are eying the decision by the Supreme Electoral Tribunal next week before deciding whether to commit to Temer, whose approval ratings are languishing around single digits.

The president, who took office last year following the impeachment of Dilma Rousseff on charges of breaking budget rules, said not one party had come forward to say they were reconsidering their support. He urged the electoral tribunal to decide promptly on the campaign finance case.

A ruling against Temer would in theory strip him of office, though he is expected to appeal to the Supreme Court, which would drag the case out for several more months.

"If there was a definitive solution it would be very useful because even with the country back to growth ... people still say, 'yes, but there is the case before the TSE'. It tends to create instability."

However, Gilmar Mendes, a supreme court justice who also heads the electoral tribunal, dismissed on Monday appeals from politicians for the court to step in to remedy the nation's ills.

"It is not up to the TSE to resolve this political crisis, and it is good that is made clear," Mendes said. "The court is not an instrument for solving political crises. This ruling with be legal and judicial."

NO PLAN B ON PENSIONS

Investors have welcomed Temer's business friendly agenda, lifting the real currency and Brazilian stock market after he took office last year. Yet growing concerns over whether his embattled government will be able to implement its reform agenda have weighed in markets in recent weeks.

Temer said his government had not yet tallied the 308 votes in Congress that it needs to push through its flagship welfare reform, designed to tackle Brazil's hefty budget deficit by raising the pension age.

He voiced confidence, however, that it would get there.

"If the pension reform is not approved, the country will not stop. It would not be good though," Temer said.

Meirelles dismissed press reports that the government could use decrees to reduce retirement benefits if its proposal was rejected in Congress.

"It is not an alternative to pass pension reform by decree. There is no plan B," Meirelles told reporters. "There is only a plan A."

Like the president, Meirelles voiced confidence the pension reform would be approved, even if that involved some further modifications to ease its terms. The economy should then see a recovery in growth in the second half of the year.

"The economy should enter 2018 growing at a rate of around 3 percent," the minister said. (Reporting by Daniel Flynn; Writing by Alonso Soto; Editing by Dan Grebler and Andrew Hay)

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