UPDATE 2-Petrobras raises Brazil gasoline price 4 pct, diesel 8 pct
* New fuel price policy announced but details scarce
Wholesale rise expected to boost pump prices 3 pct
* Market was expecting bigger price rise, analyst says
(Adds company, government and market comment, background, share price)
By Jeb Blount
RIO DE JANEIRO, Nov 29 (Reuters) - Brazil's state-run oil company, Petroleo Brasileiro SA, said on Friday it will raise the wholesale price of gasoline by 4 percent and diesel by 8 percent to cut losses and bring domestic fuel costs closer to international levels.
The adjustment takes effect at 00:00 (0200 GMT) on Nov. 30 and applies to the amount paid by distributors before taxes. Those distributors are free to decide how much of the increase they will pass on to consumers at the fuel pump. The government expects the increase to add about 3 percent to retail pump prices.
The increase is the first since Petrobras, as the company is known, raised the diesel price by 5 percent in March and gasoline by 6.6 percent in January.
The increase, Petrobras said, is part of a new fuel-pricing policy, approved on Friday by the Petrobras board. The policy seeks "convergence" with world fuel prices. The policy also aims to cut debt levels and to move toward international prices without subjecting consumers to sharp price swings.
Petrobras, though, did not give details on how the policy will work or on what change in world benchmark fuel prices would trigger changes in domestic prices. Petrobras, whose 13 Brazilian refineries have a monopoly on fuel processing in the country, said the board of directors decided not to outline the parameters of its plan "for commercial reasons."
"This doesn't sound any different than the old policy," said Lucas Brendler, who helps manage about $2.57 billion of stocks for Banco Geração Futuro in Porto Alegre, Brazil. "The adjustment itself is not only far below what is needed to get Petrobras' finances in order, its below what the market expected."
The previous policy, as outlined by Petrobras over the past decade, was to target long-term world prices in a way that would keep domestic revenue robust without passing on sharp, frequent changes, or volatility, to Brazilian consumers.
The market was expecting a 5 to 6 percent increase for gasoline and 10 percent for diesel, Brendler added. Petrobras preferred shares rose 2.5 percent Friday before the increase was announced.
Petrobras' refining and supply division has lost more than 30 billion reais ($12.8 billion) since the start of 2012. Those losses were the result of the government's reluctance to allow the price of fuel to rise, part of a policy to control inflation. Gasoline and diesel are heavily weighted in the country's benchmark IPCA inflation rate.
The IPCA has hovered around the 6.5 percent top of the government's target range since the end of 2012. To bring it down the central bank has been raising interest rates to fight inflation and on Wednesday boosted the benchmark rate a half a percent to 10 percent.
The government, which faces an election in October 2014, has a difficult choice. Does it fight inflation, which Brazilians still fear after hyperinflation in the 1990s, or seek to boost economic growth, which is sluggish and could be slow further if interest rates rise further to control inflation.
The answer has often been to use Petrobras instead, forcing the company to subsidize fuel prices, an economic stimulus which does not show up in the government budget.
By permitting an increase the government thinks it will not have a substantial impact on the economy or change the government's inflation outlook, a source with the government economic team told Reuters.
The policy though will hurt the government by cutting dividends and taxes from Petrobras. If debt rises too far, or Petrobras is downgraded by bond-rating agencies, borrowing costs could rise, hurting the investment capacity of a company that is directly responsible for about half of President Dilma Rousseff's signature Growth Acceleration Plan.
The plan, known locally as the PAC, is to help Brazil catch up with the world's developed economies.
For Petrobras, the refining-division losses are crimping Petrobras' revenue and profit, forcing the company to increase borrowing to finance a $237 billion five-year investment plan, the world's largest corporate spending program.
In the third quarter, domestic gasoline prices were 18.9 percent below world prices and diesel 20.1 percent lower, according to Planner Corretora, a Sao Paulo securities brokerage.
As a result, fuel imports, which have risen in recent years, are paid for at world prices and sold in Brazil at a steep loss. Petrobras also loses potential revenue on fuel made from domestic oil as it accounts for crude output using world prices only to sell the products refined from that oil at low Brazilian prices.
Net imports of fuel and crude oil, or the excess of imports over exports, rose 57 percent in the three months ended Sept. 30, compared with the same period a year earlier.
As world prices for fuel are in dollars and local prices in Brazil's currency, the real, , a 12.4 percent slide in the real against the dollar this year wiped out the impact, relative to international prices, of Petrobras' January and March wholesale fuel-price hikes.
($1=2.3369 Brazilian reais)
(Additional reporting by Patricia Duarte and Sabrina Lorenzi; Editing by Steve Orlofsky, Peter Galloway and Bob Burgdorfer)