Itau acquires Unibanco, forming biggest Latam bank

* Deal creates largest financial group in Latin America

* New bank will have 575.1 billion reais in assets

* Itau shares soar 13 percent, Unibanco up 7 percent

(Adds analyst comments, details on deal, updates shares)

By Todd Benson and Elzio Barreto

SAO PAULO (Reuters) - Brazilian bank Itau ITAU4.SA ITU.N will acquire smaller rival Unibanco UBBR11.SA UBB.N in an all-stock deal that will create the largest financial group in Latin America, the companies said on Monday.

The tie-up comes as banks around the world are under heavy pressure from the global financial crisis, which has reduced the availability of credit and forced a consolidation of the banking industry from the United States to Europe.

The deal also caps weeks of frenzied activity in Brazil's financial sector, with big banks like Itau, Unibanco and Bradesco (BBDC4.SA) (BBD.N) taking advantage of looser central bank regulations to snap up loan portfolios from smaller firms squeezed by the credit crunch.

With the global crisis battering banks around the globe, Itau and Unibanco rushed out their third-quarter results ahead of schedule in recent weeks to reassure investors that they were not overexposed to foreign currency derivatives. Both reported strong profits, sparking a rebound in their shares.

"We shouldn't let the current situation contaminate our analysis into thinking that one bank bought the other because it was in trouble," said Luiz Miguel Santacreu, a bank analyst at Austin Rating in Sao Paulo. "This is about the consolidation of the banking sector globally and in Brazil."

Still, the transaction -- which Itau and Unibanco said they had been negotiating for the last 15 months -- cast a spotlight on the Brazilian financial sector, with some analysts speculating that some smaller banks may need to be bought to rescue them from trouble.

The deal could also put pressure on Bradesco, which has long been the largest private-sector bank in Brazil, to pursue acquisitions in a bid to hold on to the No. 1 ranking among non-government banks.

"More consolidation is likely, but all that's left are the smaller and medium-sized banks," said Nicholas Barbarisi, a managing partner at Hera Investment in Sao Paulo.

SHARES SOAR

The new company, to be called Itau Unibanco Holding, will have assets of 575.1 billion reais ($265 billion), thrusting it ahead of state-run Banco do Brasil (BBAS3.SA), currently the biggest bank in Latin America in terms of assets.

The new bank will start off with 4,800 branches, about 18 percent of Brazil's banking network, and 14.5 million clients. Its credit portfolio will also account for about 19 percent of all lending in Brazil, the banks said.