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UPDATE 1-Brazil's Bolsonaro replaces head of BNDES development bank

(Add details on new bank head, background)

BRASILIA, June 17 (Reuters) - Brazilian President Jair Bolsonaro's government has named a 38-year-old banking executive to as the new head of development bank BNDES, replacing Joaquim Levy, who resigned on Sunday after he was publicly criticized by Bolsonaro.

The Economy Ministry said Gustavo Montezano, its privatization secretary charged with advancing the divestiture of state assets, was named to run BNDES, one of the largest development banks in the world.

Montezano is a former executive at Banco BTG Pactual SA who served in London as chief operating officer at Engelhart Commodities Trading Partners, a firm owned by the investment bank's partners.

At BNDES he is expected to speed up the divestiture of the bank's assets, the slow pace of which had become a bone of contention between Levy and Bolsonaro's Economy Minister Paulo Guedes.

Bolsonaro's spokesman said the new head of BNDES is expected to return funds to the Treasury and open up investigation of loans awarded by the development bank during previous leftist governments.

Frustration over Levy's resistance to fire a bank executive who had worked under Workers Party President Dilma Rousseff led Bolsonaro to say last week that his days at BNDES were counted and there was a "price on his head."

Levy, an internationally respected economist, was Brazil's finance minister during Rousseff's government and later managing director and World Bank Group chief financial officer until he accepted the job heading BNDES.

Brazil's lower house speaker, Rodrigo Maia, said on Monday he regretted the departure of the head of BNDES, though Brazilian markets barely reacted to the resignation of the internationally respected economist.

"It was a pity for Brazil to lose someone of the quality of Joaquim Levy and the way he was removed was cowardly," Maia told reporters in Sao Paulo. (Reporting by Mateus Maia; Writing by Carolina Mandl; Editing by Bill Berkrot and Sandra Maler)