Brazil stocks slip as banks fall, currency weakens

SAO PAULO, Aug 29 (Reuters) - Brazil's stocks seesawed just below the unchanged mark on Friday as gains in state-run oil company Petrobras and telecoms group Oi Participacoes were offset by declines in banks Bradesco and Itau.

The Bovespa index .BVSP of the Sao Paulo Stock Exchange edged 0.29 percent lower to 56,218.12, heading for its first decline in three days. Higher oil prices lifted shares of state-run Petrobras, while telecoms group Oi gained after it announced a massive dividend payment.

Falling stocks on Wall Street, where the Dow Jones industrial average .DJI fell 1 percent and the Nasdaq Composite Index .IXIC was down nearly 2 percent, also weighed on Brazilian banks. Unibanco UBBR11.SA fell 2 percent to 19.5 reais and Banco do Brasil (BBAS3.SA) was off 1.9 percent at 23.73.

Bradesco (BBDC4.SA) fell 1.5 percent to 30 reais, while Itau ITAU4.SA dropped 1.9 percent to 31.06 reais as investors took profits after a recent rally. Bradesco and Itau each gained about 5 percent over two days.

Petrobras (PETR4.SA) climbed 0.5 percent to 35.51 reais as crude prices rose more than $1 a barrel on concerns Tropical Storm Gustav would disrupt production in the Gulf of Mexico.

Oi Participacoes (TNLP4.SA), Brazil's largest telecommunications company, jumped 2.3 percent to 38.05 reais after its directors on Thursday approved an extraordinary dividend payment of 5.1 billion reais, to be paid on Sept. 19. Oi shareholders will receive 1.2 billion reais, while holders of its Telemar Norte Leste unit will get 3.9 billion reais.

Telemar Norte Leste (TMAR5.SA) gained 1.2 percent to 85.

Brazil's real BRBY dipped 0.18 percent to 1.636 per dollar in thin trading ahead of the U.S. Labor Day long holiday weekend.

Interest-rate futures <0#DIJ:> on the BM&F commodities and futures exchange were mostly lower on expectations recent hikes in borrowing costs will help stem inflation pressures.

Central Bank President Henrique Meirelles said on Friday the cycle of rate increases that started in April is helping to bring inflation down to the government's target. (Reporting by Elzio Barreto; Editing by James Dalgleish)