UPDATE 1-Petrobras says in talks with Brenco for alliance

* Petrobras says in talks with Brenco on biofuels

* Petrobras also says Braskem-Quattor talks preliminary

* Shares of oil giant rise 0.5 pct on Monday (Recasts with confirmation, adds details on filing)

SAO PAULO, Aug 24 (Reuters) - Petrobras (PETR4.SA), Brazil's state-controlled oil company, said on Monday it is in talks with Brenco, a Brazilian ethanol producer backed by venture capitalist Vinod Khosla and AOL founder Steve Case, to explore possible opportunities in the biofuels industry.

The Rio de Janeiro-based company said it is "in talks with a goal of identifying possible synergies in the sector of biofuels production," according to a regulatory filing.

The daily newspaper Valor Economico reported on Monday that Brenco is considering selling a stake to either Petrobras or two other groups to raise cash and restructure its debt.

According to Valor, Brenco might sell a controlling stake to Petrobras (PBR.N) or seek a merger with ETH Bioenergia, an ethanol producer controlled by Brazilian industrial conglomerate Odebrecht.

Brenco did not return calls seeking comment.

Mergers and acquisitions have been gaining momentum in Brazil's sugar and ethanol sector since the credit crisis hit mills that took on too much debt in past years to leverage their expansion.

Valor said Brenco hired Brazilian consulting firm Angra Partners to help with a financial restructuring. Brenco had planned to invest 5.5 billion reais ($3 billion) and become one of Brazil's top ethanol producers, with annual output capacity of 1 billion gallons of ethanol.

"Right now all talks are in a preliminary phase and haven't rendered a definitive accord," the Petrobras filing said, adding that there was no deadline for the conclusion of the talks.

A spokeswoman for ETH Bioenergia said the company would not comment on speculation.

Petrobras announced early last year ambitious plans to invest in ethanol production through minority stakes in mills, but it has been slow to make good on the initial target to have a stake in 40 different plans, with focus in exporting to the Japanese market.

The company, which said in June it had plans to buy an existing mill by the end of 2009, is currently building a plant in association with Japanese trading company Mitsui (8031.T).

Petrobras also confirmed that Braskem (BRKM5.SA), Latin America's largest petrochemical company, is in talks with controlling shareholders of rival Quattor SZPQ4.SA to spot opportunities for a strategic alliance in the petrochemical sector.

Quattor is controlled by Unipar Participacoes, another Brazilian petrochemical producer, and Petrobras.

Preferred shares of Petrobras gained 0.6 percent to 33.65 reais. Braskem gained 3.6 percent to 10.68 reais. ($1=1.83 reais) (Reporting by Elzio Barreto and Camila Moreira, additional reporting by Guillermo Parra-Bernal; editing by John Wallace and Gunna Dickson)