UPDATE 1-Brazil Petrobras sees 3-4 bln barrels oil in Iara

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SAO PAULO, Sept 10 (Reuters) - Brazil's state-run oil company Petrobras (PBR.N)(PETR4.SA) said on Wednesday it estimates the recoverable oil and gas reserves in the subsalt Iara field at 3 billion to 4 billion barrels.

The announcement, which appears to confirm the massive hydrocarbon potential of the subsalt layer off Brazil's southeast coast, is the second official recoverable reserve estimate of a field in the 200 by 800 kilometer (125 by 500 mile) subsalt band.

It comes as debate heats up in Brazil over what it plans to do with its newfound oil wealth. Unofficial estimates of the oil reserves contained in the subsalt band have ranged between 50 billion and 80 billion barrels.

The Iara field is part of the same BM-S-11 block in which the super giant Tupi field lies. Petrobras, the operator in the block, and its partners BG Group (BG.L) and Galp Energia (GALP.LS) estimated in late 2007 that Tupi held 5 billion to 8 billion barrels of recoverable oil and gas.

Petrobras holds a 65 percent stake in the larger block, BG Group holds 25 percent and Portugal's Galp 10 percent.

Iara, which covers a much smaller area in BM-S-11 than Tupi, lies 230 kilometers off the coast of Rio de Janeiro and holds light oil ranging between 26 and 30 on the API scale, similar to the Tupi.

Most of Brazil's oil production is heavy grade oil of around 18 on the API scale or lower and comes from much shallower offshore reserves.

Iara, similar to Tupi, lies under 2,230 meters (88,000 feet) of water, and another roughly 4,000 meters of rock, sand and salt.

Analysts, such as UBS, estimate that development of the subsalt fields around the Tupi, including Iara, Carioca, Parati, Jupiter and others, will require investments of $600 billion to $1.2 trillion in the coming decades.

Petrobras has said that the cost to develop the fields will probably be much lower. (Reporting by Reese Ewing; Editing by Marguerita Choy)