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UPDATE 3-Brazil caps debit card fees, may limit them further

(Adds share reaction, analyst comments)

BRASILIA, March 26 (Reuters) - Brazil on Monday announced a cap on debit card fees paid by businesses to card issuers and left the door open to curbing them further, in a move to enhance consumer protections at the expense of an increasingly concentrated banking sector.

Starting on Oct. 1, so-called interchange fees will be capped at 0.80 percent of transaction values, while averaging no more than 0.50 percent, according to new central bank rules first reported by Reuters in January.

The measures will slash banks' revenue from such transactions by around 40 percent while keeping regulations flexible in the competitive market for payment processors, central bank director Reinaldo Le Grazie told a news conference.

According to the central bank, interchange fees rose to 0.82 percent from 0.79 percent over the last eight years. The total fee paid by retailers, including transfers to payment processors such as Cielo SA, often ranges from 1 percent to 3 percent of transaction values.

The new central bank rules are the latest case of Brazilian policymakers flexing their muscles to reduce costs for consumers saddled with some of the world's highest interest rates.

Early last year, Brazil's top economic policy body tightened the rules on revolving credit lines offered by banks as part of such efforts.

The bank may also scrap a limit on the maximum value of debit card transactions or impose a cap on credit card interchange fees, Le Grazie said on Monday.

"Our goal is that debit cards are used for payment and credit cards are used for credit," he said.

Analysts at Goldman Sachs & Co said the biggest impact from the measures may be on Cielo, Brazil's biggest payment processor, because it also issues cards. The analysts projected a potential 4 percent reduction in Cielo's net income due to the move.

Cielo shares fell 1.5 percent on Monday to a nearly five-month low.

Goldman analysts also estimated that Itaú Unibanco Holding SA, Banco Bradesco SA, Banco do Brasil SA and Banco Santander Brasil SA would lose less than 1 percent of earnings from the new debit card rules.

Although the impact on banks should be limited, the measures could be a boon for the fast-growing field of independent payment processors such as PagSeguro Digital Ltd, which does not issue cards.

PagSeguro shares jumped nearly 5 percent on Monday to an all-time high.

($1 = 3.30 reais) (Reporting by Marcela Ayres and Bruno Federowski; editing by Grant McCool and Tom Brown)