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Brazil's Supreme Court recognized the legal rights of same-sex partners in "stable" civil unions, Chief Justice Cezar Peluso announced.
The 10 justices unanimously ruled that partners in a same-sex union had the same legal rights as a man and woman in a marriage.
"Those who opt for a homosexual union cannot be treated less than equally as citizens," Justice Camen Lucia said.
"No one should be deprived of rights on the basis of sexual orientation," added Justice Ricardo Lewandowski.
President Dilma Rousseff's Attorney General Roberto Gurgel had backed the plan granting gays and lesbians the right to form civil unions, and on guaranteeing them the same legal rights as other couples.
"Lacking a law approved in Congress regulating gay civil unions and homosexual marriage, the recognition by the Supremes is the best thing that could happen," said Maria Berenice Dias, a judge specializing in gay rights.
Dias said that the rights of a "stable union" are virtually the same as those of a marriage, because they recognize the couple as a family unit.
"It means that no judge can deny rights" such as retirement benefits, inheritance, health benefits and the adoption of children, Dias said.
Many gay couples had already obtained recognition of their rights in individual legal cases, but now the rules will be clear and universal, Dias added.
"Discrimination generates hatred," said Justice Carlos Ayres Britto, who wrote the ruling.
"We expect that this decision will be an important step for other actions, and that the Senate follows the example of Argentina, which has already approved same-sex civil marriages," the head of the Gay Group of Bahia, Marcelo Cerqueira, told AFP.
For years Brazil has held what is considered the largest gay pride parade in the world, held in Sao Paulo, but "we are also number one when it comes to assassination, discrimination and violence against homosexuals," Cerqueira said.
A lawsuit was lodged by Rio state Governor Sergio Cabral, who wanted to give all state employees the same rights, and the attorney general's office.
The Roman Catholic church in Brazil, the country with the most numerous Catholic population in the world, has opposed gay civil unions.
"Plurality has its limits," said Hugo Jose de Oliveira, an attorney for the Conference of Bishops, who defended marriage as the union of a man and a woman as is stipulated in Brazil's constitution.
Maringa Archbishop Anuar Battisti told the news website G1 that he considers the ruling a "frontal assault" on the family.
In 2007 Uruguay became the first country in Latin America to legalize civil unions for homosexual couples. In 2010 Argentina became the first Latin American country to legalise gay marriage.
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