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(Adds key cabinet appointment)
By Dion Rabouin
May 12 (Reuters) - BlackRock Inc is among major asset managers that had been raising their bets on Brazil even before President Dilma Rousseff was suspended from office on Thursday, but many investors are wary about the long-term recovery prospects of Latin America's largest economy.
The growing likelihood that business-friendly Vice President Michel Temer would take power has already driven Brazil's Bovespa stock index 22 percent higher and its real currency up 12 percent against the dollar so far this year.
Temer, who took the helm on Thursday after Brazil's Senate voted to put Rousseff on trial for allegedly breaking budget rules, named former central bank chief Henrique Meirelles as finance minister. .
Rousseff has denied any wrongdoing. But her popularity was crushed by a moribund economy and a spiraling probe into a corruption scheme at state-run oil company Petrobras, at a time when she was chairwoman of its board.
In its Latin America Fund, BlackRock, the world's largest asset manager, has made what portfolio manager William Landers called "a huge shift" from being underweight Brazil as recently as March to being overweight now.
"My expectation is that we're going to have a much more market-friendly government coming into Brasilia with a strong cabinet, a strong central bank and really we're going to go back to what worked in Brazil," Landers said.
BlackRock's top three holdings in the $188 million fund are beer brewer Ambev and banks Itau Unibanco Holding and Banco Bradesco, according to BlackRock's website.
Michael Reynal, portfolio manager of the RS Emerging Markets Equity Fund, a unit of Guardian Life Insurance Co, has recently increased the $198 million fund's holdings in Brazil, adding shares in insurer BB Seguridade, road concession operator Ecorodovias, iron ore miner Vale, and water utility Sabesp.
"We were cautiously constructive (in March), worried about the political process, but hoping that it would move forward," Reynal said. "And indeed we've stumbled forward on the right path."
Reining in Brazil's massive deficit, however, will be a struggle, as will be pulling the country out of its worst recession since the 1930s.
"Brazil's problems are really much more deep-seated than Dilma," said Peter Marber, head of emerging market investments at Loomis Sayles in Boston.
Loomis' $24 million Emerging Markets Opportunities Fund had previously been underweight in Brazil, avoiding metals and energy companies' bonds. But it recently increased holdings in the country, favoring exporters like animal protein producer Marfrig and pulp and paper maker Suzano, as oil and commodities prices have recovered.
When it comes to further raising Loomis' Brazil holdings, Marber wants to see how much Temer can really change things.
"This is a country that needs massive educational reform, massive infrastructure reform, massive reduction in a variety of tariffs and a total breakdown and reconfiguration of the logistics sector to improve efficiency," Marber said.
T. Rowe Price's $20.45 billion emerging markets equity strategy has beefed up positions in bank stocks like Itau and Bradesco as well as retailers like Lojas Renner and Raia Drogasil since the impeachment drama began, said Chuck Knudsen, emerging markets equity portfolio specialist. But the funds have also trimmed other positions to fund those increases.
"We've consolidated our positions a little bit into the names that we really have the most confidence in and have the most growth prospects," Knudsen said.
He said he would wait and see when it comes to adding new Brazil assets.
But Atul Lele, chief investment strategist at Bahamas-based Deltec International, is among those who are sounding a big note of caution about making any moves in Brazil without keeping your eyes wide open.
The country's economic woes run so deep that even an improved political environment could make them "almost insurmountable," he said.
Lele is shorting the iShares MSCI Brazil Capped ETF, betting it will decline given the country's excessive reliance on U.S. dollar liquidity, high commodity prices and a bloated debt load.
"A lot of it is outside the politicians' hands, so that's why it doesn't matter who moves in," he said. (Reporting by Dion Rabouin; Editing by Christian Plumb and Tom Brown)