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UPDATE 2-Shares in Brazil's XP down as Itausa sells stake, market share falls

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(Recasts with U.S.-traded shares reaction, details on market share, analyst comment)

By Gabriel Araujo

SAO PAULO, Dec 14 (Reuters) - U.S.-traded shares in Brazilian brokerage XP Inc fell about 7% on Tuesday after investment firm Itausa SA said it had sold 7.8 million class A shares in the company for 1.2 billion reais ($211.75 million).

Itausa's move added pressure on XP amid a decline in the brokerage's market share as Brazil faces a rise in interest rates meant to rein in high inflation.

Itausa said in a securities filing it now holds a 13.67% stake in XP, and the move is expected to have a positive impact of about 900 million reais in its fourth-quarter results.

"(It) comes from the company's strategic decision to diversify its portfolio in non-financial assets," Itausa said.

Investors are wary about when Itausa will sell its remaining stake in XP, as it has already said it does not plan to keep the broker in its portfolio in the long-term.

Shares in XP were down about 7% to $29 on the Nasdaq, while Sao Paulo-traded shares in Itausa rose about 1.7%.

LOWER MARKET SHARE

In addition to Itausa's stock disposal, XP is also facing pressure from a steady market share decline.

Analysts at Credit Suisse said in a note that XP's equities brokerage volumes fell 13% in November from the previous month, with market share falling to levels not seen in recent years.

They said market share for the whole XP group - which also includes brokerages Rico and Clear - fell to 13.9% in November from an average of 16.9% in the first half of 2021, noting that XP's market share has been in steady decline since July.

"This movement of lower volumes and market share seems to start reflecting the impact from macro conditions and a higher interest rate environment, and point to lower brokerage revenues in 4Q21," Credit Suisse said.

($1 = 5.6670 reais) (Reporting by Gabriel Araujo, Editing by Nick Zieminski and Bernadette Baum)