* Petrobras lost about $11 bln in 2012 on fuel subsidies
* Diesel was 14 pct below world price before hike - JPMorgan
* Vale is main diesel client; Cosan, Shell top distributors
(Adds details throughout, background, share price)
RIO DE JANEIRO, March 5 Brazil's state-led oil
company Petrobras said on Tuesday that it would raise the
wholesale price of diesel fuel 5 percent effective at midnight
(0300 GMT) in an action aimed at cutting losses from selling
fuel at prices below world-market levels.
The increase would apply to all diesel fuel sold to
distributors at the refinery gate and would be applied to the
price before taxes. Distributors are free to pass on the
increase to their customers or not.
Diesel is Brazil's most-used motor fuel, powering most of
the country's trucks, railway locomotives and heavy machinery.
Mining company Vale SA is Brazil's largest diesel
Petroleo Brasileiro SA, as the company is
formally known, has been forced by the government, its
controlling shareholder, to keep fuel prices at home below
international levels in an effort to control inflation.
Losses on fuel subsidies have crimped cash for investment as
the company moves ahead with a $237 billion five-year investment
plan, the world's largest corporate spending program.
The government said on Friday that it could erase the fuel
price gap in 2013 to help Petrobras fund a massive expansion of
offshore oil production.
Despite two increases in 2012, Petrobras recorded its first
loss in 13 years in the second quarter and the refining unit of
the company, Brazil's only refiner, racked up 22.9 billion reais
(US$11.7 billion) of losses in the year.
After a third increase on Jan. 30, Petrobras diesel prices
were still about 14 percent below world levels, according to
JPMorgan Chase & Co. Gasoline prices, which will not rise at
midnight, are about 11 percent below world levels, JPMorgan
Rising demand at home and refineries working at near full
capacity forced Petrobras to import fuel at world prices and
sell it at home at a loss.
Imports also got a boost after a surge in ethanol prices
forced the government to cut the amount of the biofuel in
gasoline blends to 20 percent from 25 percent.
Principal distributors include Petrobras' distribution unit
BR Distribuidora, the Ipiranga chain of gas stations and the
local unit of Royal Dutch Shell Plc., which operates
fuel distribution activities with Brazil's Cosan SA,
the world's largest sugar and ethanol company.
($1 = 1.9635 Brazilian reais)
(Reporting by Jeb Blount; Editing by Gary Hill)