(Adds details on decision, context)
SAO PAULO, Aug 28 (Reuters) - A body of Brazil’s Cade antitrust watchdog on Monday recommended rejecting the acquisition of a liquefied petroleum gas distribution unit owned by state-controlled oil company Petroleo Brasileiro SA by Ultragaz Participações Ltda.
The watchdog division said the sale of Liquigas Distribuidora SA should be rejected by Cade´s board because the new player could have excessive regional market power that would be difficult to resolve through divestitures.
In a statement, Cade´s panel said the deal would eliminate one of the four competitors controlling 85 percent of the market and would create incentives to price collusion.
Petrobras agreed to sell Liquigas to Ultragaz, a unit of Brazilian industrial conglomerate Ultrapar Participações SA , last November for 2.8 billion reais ($884 million), as part of a large asset sale program to cut its debt.
If the Cade board rejects the Liquigas sale, it would be the third large deal blocked this year by the antitrust body.
In June, Cade blocked the sale of education group Estacio Participacoes SA to rival Kroton Educacional SA .
Earlier this month, Cade rejected the sale of fuels distribution firm Alesat to Ipiranga, a company also controlled by Ultrapar. ($1 = 3.1673 reais) (Reporting by Tatiana Bautzer; Editing by Dan Grebler)