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By Alonso Soto and Guillermo Parra-Bernal
BRASILIA/RIO DE JANEIRO, April 8 (Reuters) - Brazilian lender Caixa Econômica Federal plans to list its insurance unit this year on the São Paulo Stock Exchange, Finance Minister Joaquim Levy said on Wednesday, in a bet that growing demand for insurance products will attract investors.
The government, which owns 100 percent of Caixa, will conduct a feasibility study on an initial public offering of Caixa Seguridade, as the unit will be called, Levy told reporters in Brasilia.
Caixa, Brazil's No. 1 mortgage lender, will remain a state bank, he added.
Levy did not give an estimate of how much the unit, majority-owned by France's CNP Assurances SA, could fetch.
The IPO would try to replicate the success of state-controlled Banco do Brasil SA, which listed BB Seguridade Participações SA in a $6.7 billion deal in April 2013, the world's largest IPO that year.
Current conditions for a listing, however, are not as attractive as they were for BB Seguridade, when investors were drawn in by low interest rates, stable household income and a strong job market that fanned demand for retirement packages and health and auto insurance.
The Caixa Seguridade listing would take place during an economic downturn that is spilling over into the job market, reducing the spending power of Brazilians.
Nevertheless, the insurance market looks set for growth. Brazilians spend less than a tenth of what Americans do on insurance, which could give local venders an opening to attract new clients by transforming traditional, costlier policies into cheaper products.
Fund managers told Reuters the announcement signaled a shift in the way President Dilma Rousseff's administration is handling state companies.
One fund manager, who requested anonymity to speak freely, said "investors feel safer putting their money into the insurance unit than at Caixa, which is clearly a government policy tool."
The government had considered offering Caixa shares, but that looked destined to fail because of the perception among investors that Rousseff would put politics before profits.
Private-equity firm GP Investments Ltd, a partner in the Caixa insurance unit, had planned to exit the investment through an IPO last year, but market conditions hampered that deal, a source with direct knowledge of the plans told Reuters at the time.
No company has been able to complete an IPO in Brazil since last October in the wake of plunging market confidence caused by economic and political turmoil. (Additional reporting by Luciana Otoni. Editing by Andre Grenon)