* Common shares dive 8 pct on new dividend terms
* CEO says raising output priority despite tough climate
* Recent fuel price rise not enough to stem import losses
RIO DE JANEIRO, Feb 5 The worst annual result in eight years at Brazil's state-led oil company Petrobras prompted it to cut the common-share dividend as it sought to preserve cash to maintain investments as fuel and refining losses mount, executives said on Tuesday.
Common shares of Petroleo Brasileiro SA slumped as much as 8.8 percent on Tuesday in Sao Paulo, reaching their lowest level since late 2005.
Petrobras saved about 3.5 billion reais ($1.77 billion) with the common share dividend cut, Chief Financial Officer Almir Barbassa said, cash needed to keep its planned $237 billion five-year investment plan on track.
"The amount saved is about what it costs for an oil platform that can produce about 150,000 barrels of oil a day," Chief Executive Maria das Graças Foster told investors on a conference call from Rio de Janeiro. "Not making the investment would cause losses, hurt future cash flow."
Previously Petrobras had paid equal dividends to common and preferred shareholders, though that is not required under the law or the company's by-laws.
Petrobras cash generation has been squeezed in recent years as the government, which owns a majority of voting shares, prevented the company from raising fuel prices in line with world prices.
Rising demand at home and refineries working near full capacity forced the company, the only refiner in the world's sixth largest economy, to import fuel at world prices and sell it at home at a loss.
Despite gasoline and diesel price hikes in June, July and on Jan. 30 Foster said a gap still remains between domestic and international prices.
"(2012) was an extremely difficult year," Foster said on a conference call with investors. "The year 2013 will be even more difficult, especially in the first half," she said.
Brazil's domestic fuel prices are effectively set by the government, which owns a majority of Petrobras common, voting shares. The government has held prices in check to help limit inflation. Its refining unit lost 22.9 billion reais in 2012, an amount larger than its entire 21.2 billion full year profit.
The refining losses helped the company post its worst annual result since 2004.
Foster blamed a weaker real for the lingering difference in fuel prices in comments at a press conference regarding fourth-quarter earnings released late on Monday.
The company's common shares pared losses in Sao Paulo to 8.2 percent in afternoon trading. Preferred shares, the most widely traded class of Petrobras stock, erased an early drop to gain 0.3 percent.
Foster said a difficult operating climate would persist but the company would not waiver from its investment plans to raise output. The company plans to invest 97.7 billion reais ($49.1 billion) in capital projects in 2013 alone, Foster said.
Petrobras' debt rose to 2.77 times adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), above the company's own internal limit of 2.5 times EBITDA.
"Debt rose because of difficulties, declining production," Chief Financial Officer Almir Barbassa said.
Debt is likely to remain near that level or go higher in 2013, Foster said adding that she does not think it will cause ratings agencies to cut the company's "investment-grade" debt rating.
Petrobras is seeking to shed some of its assets to raise cash. Foster said the company had received offers and hoped to conclude deals by April.