UPDATE 2-Brazil's Petrobras to sell $4 bln of bonds-sources

* Petrobras to raise $4 billion from two-tranche bond sale

* Bond sale would be largest ever by a Brazilian company

* Proceeds should be used for refinancing (Adds latest book data)

SAO PAULO/RIO DE JANEIRO, Oct 23 - Giant Brazilian oil company Petrobras <PETR4.SA> <PBR.N> on Friday launched $4 billion of 2020 and 2040 global bonds in what may be the largest-ever sale of corporate debt by a Brazilian company, sources with direct knowledge of the deal told Reuters.

State-controlled Petrobras is offering $2.5 billion of 2020 bonds at a yield of 5.875 percent, in the lower range of an informal price guidance provided to Reuters by investors participating in the deal.

The company also launched $1.5 billion of 2040 bonds at a yield of 7.0 percent, said the sources, who declined to be named because the transaction is in the works.

The Petrobras sale would top mining company Vale's <VALE.N><VALE5.SA> $3.75 billion offering of 10- and 30-year debt held on Nov. 16, 2006, according to Thomson Reuters data. It would be the second-biggest in Latin America after Venezuelan state oil company PDVSA's $7.5 billion bond sale of 10-, 20-, and 30-year debt held in April 2007.

The sale marks the third time Petrobras has tapped the global bond market this year. The size of the deal suggests it wants to borrow more often and in greater amounts to fund investments and roll over obligations smoothly, investors said.

Demand from investors is concentrated on the January 2020 bonds because the securities are perceived as cheap relative to the price of Brazilian government debt of comparable maturities, the investors said.

"There's demand coming from all corners," said Bevan Rosenbloom, a corporate debt analyst with RBS in Greenwich, Connecticut. "This is a crossover issue, both emerging markets and investment grade investors should help drive the deal."

The yield on the Petrobras' outstanding 7.875 percent coupon bond due March 2019, of which the company has sold $2.75 billion in two parts this year, jumped almost 0.4 percentage points since Oct. 16, when plans for a new offering were disclosed.

The yield rose to 5.88 percent <US71645WAN11=R> on Friday from 5.43 percent on Oct. 15.

Petrobras sold the 2019 bonds in two sales in February and July, helped by easing risk aversion.

The 2020 and 2040 issue is rated Baa1 by Moody's Investors Service, and BBB minus by Standard & Poor's, all investment-grade ratings.

Investors taking part in the deal heard bids for the new securities topped $12 billion.

USE OF PROCEEDS

Petrobras said in an Oct. 19 statement it plans to use the funds to replace a bridge loan taken out earlier in the year when financing was tight.

That loan was originally for $6.5 billion but Petrobras has twice tapped capital markets since then for a total of $2.75 billion to help it pay down the more expensive financing.

The company plans to invest $174.4 billion over the next five years as part of a broad plan that includes developing a vast offshore subsalt region of deepwater crude fields believed to hold some 50 billion barrels of oil.

Fitch Ratings said in September Petrobras will have to borrow an additional $30 billion through 2014 to develop the fields due to their technical complexity.

In July, ratings company Standard & Poor's downgraded Petrobras' debt by one notch to BBB minus, the lowest ranking for investment grade on concern its debt was growing too fast.

Petrobras has been forced to increase borrowing since the intensification of the financial crisis a year ago when credit markets collapsed. Net debt jumped 63 percent by the end of the second quarter from about $18 billion a year earlier.

This year, in addition to the bridge loan led by Banco Santander and Societe Generale, Petrobras secured a $12.5 billion credit line from Brazil's state development bank BNDES, $2 billion in loans from the EximBank of the United States and $10 billion from the China Development Bank.

Santander <SAN.MC>, Citigroup <C.N>, HSBC <HSBA.L> and JPMorgan Chase <JPM.N> advised the company on the transaction.