By Brian Ellsworth

RIO DE JANEIRO (Reuters) - Brazilian state oilgiant Petrobras will likely see strong demand for its $79billion share offer that prices late Thursday as its accessto massive crude reserves is offsetting investor concerns ofgrowing government control over the company.

The offering will help Petrobras bring in freshfunds for the world's largest oil exploration plan and endmonths of uncertainty over the complex operation that haspushed its share price down 27 percent this year -- wiping morethan $70 billion off its market value in the process.

Petrobras last week expanded the offer, a sign investorsare finally coming to terms with a $42.5 billion oil-for-sharesswap with the government that many saw as unfair to Petrobras'private shareholders.

"The offer is going to go well. People realize this is agood asset at a discounted price," said Marc Fogassa, amanaging partner at Hedgefort Capital Management in Pasadena,California, which owns Petrobras shares. "These oil reservesare considerably better than what companies here in the U.S.can offer."

The company earlier this month filed to sell 1.59 billionnew preferred shares and 2.17 billion new common shares -- figures that do not include the greenshoe option.At Tuesday's closing prices, the sale of those shares couldfetch 107 billion reais ($62.5 billion).

It then doubled the "greenshoe" option, which allows forthe sale of additional shares in the event of extraordinarydemand, to an extra 20 percent -- up from 10 percent.

"Apparently the demand is strong, because the marketappears to be expecting a big jump in the shares," said AndreQuerne, managing partner at hedge fund Rio Gestao de Recursos,which handles 140 million reais ($82 million) of stocks.

WORLD RECORD OFFERING

The massive offer will easily top Agricultural Bank ofChina's $22.1 billion initial public offeringearlier this year, as well as the $36.8 billion share sale byJapanese telecommunications company NTT in 1987.

The Petrobras offer, and a planned overhaul of Brazil's oillegislation to give the government greater control over thecountry's vast new reserves, are high on the political agendaas Brazilians prepare to vote for a new president on Oct. 3.

The hugely popular President Luiz Inacio Lula da Silva, wholeaves office on Jan. 1, has personally campaigned in favor ofthe offering with an eye on capitalizing Petrobras, whosegrowing stature is a source of pride for many Brazilians.

"All of my political life they've been calling me asocialist, and now I'm going to do the biggest capitalizationthat the capitalist world has ever seen," Lula said during aspeech Tuesday.

Lula's chosen successor, Dilma Rousseff, also favors alarger state role over strategic assets such as oil and is abig backer of the Petrobras share offering. Polls show Rousseffwith a good chance of winning the election in a landslide.

The offering could prove attractive to foreign investorssuch as sovereign wealth funds that are seeking greater accessto crude reserves.

Over the past decade, state energy companies have come tocontrol a greater share of the world's oil as reserves held byprivate firms have dwindled.

The recent uptick in sentiment follows weeks of furiouscriticism of the transaction, which suffered a two-month delayand included weeks of tense negotiations between the governmentand the company over the price of oil to be used in theexchange for stock.

Analysts said the price of $8.51 per barrel that Petrobrasultimately agreed to was too high and therefore dilutive ofshares. They had said a price of $5 to $6 per barrel would havebeen fair.

That raised concerns over increased state sway in the firm,possibly upsetting a delicate balance between state needs andinvestor interests that over the last decade turned Petrobrasinto one of the world's most respected state-run oilcompanies.

The government, which holds the majority of voting capital,has said it expects to boost its share in the company's totalcapital to 40 percent from 32 percent currently.

Its record size is seen as a boon for underwriters, whichwill be led by Brazil's Banco Bradesco incoordination with Bank of America Merrill Lynch,Citigroup, Itau Unibanco, Morgan Stanley, and Banco Santander Brasil

BTG Pactual, owned by Brazilian billionaire AndreEsteves, and state-owned Banco do Brasil willco-manage the offer. (Additional reporting by Maria Carolina Marcello in Brasilia;Editing by Todd Benson, Dave Zimmerman) ($1=1.71 reais)