(Updates with details on offering, media reports throughout)
By Rodrigo Viga Gaier
RIO DE JANEIRO, Aug 27 (Reuters) - Management at state-controlled Petróleo Brasileiro SA has urged the company's board to delay a planned initial public offering of its fuel distribution unit as market conditions soured, a person with direct knowledge of the situation said on Thursday.
Management told the board that the impact of market turmoil on strategic decisions like BR Distribuidora SA's listing should be analyzed more carefully, said the source, who requested anonymity because of the sensitivity of the issue. The company known as Petrobras announced BR Distribuidora's planned listing on Aug. 7.
The source's remarks underscore growing doubts within Petrobras about the deal, which has attracted great interest from foreign and local investors. Last week, the minutes of a recent board meeting showed that Chairman Murilo Ferreira questioned whether the BR Distribuidora IPO was the best option to help Petrobras reduce its swelling debt.
Petrobras declined to comment.
Reuters recently reported that the BR Distribuidora IPO, which controls Brazil's largest gasoline, ethanol and diesel service-station network, could take place as early as October.
Petrobras is disposing of $15.1 billion of assets it considers non-essential by the end of next year as part of an effort to trim its $132 billion debt, the largest of any oil company.
UBS Securities analysts recently valued BR Distribuidora at about $10 billion.
Petrobras had hired Citigroup Inc to advise on strategic options for BR Distribuidora, a source told Reuters last month. Citigroup is working on the IPO plan with the investment-banking units of Banco Bradesco SA, Itaú Unibanco Holding SA, Banco do Brasil SA, Morgan Stanley & Co and Bank of America Corp, that source added.
Preferred shares of Petrobras surged 7 percent to 8.70 reais on Thursday, mainly because of improving sentiment in global equity markets. (Writing by Guillermo Parra-Bernal; Editing by Chizu Nomiyama and Lisa Von AHn)