(Recasts with closing stock price, new total market value decline, latest numbers on trucker blockades)
By Marcela Ayres and Alexandra Alper
BRASILIA/SAO PAULO, May 28 (Reuters) - Petrobras shares plunged 15 percent on Monday after Brazil's government offered new fuel subsidies and softened the oil producer's pricing policy in a bid to settle a truckers' strike that has wreaked havoc on Latin America's largest economy.
As a result of tax cuts and subsidies announced by President Michel Temer late on Sunday, domestic diesel prices would fall 0.46 real per liter, or about 13 percent of the current price at the pump, and remain frozen for 60 days.
Shareholders in state-controlled Petróleo Brasileiro SA , which earlier this month soared after the company reported its highest profits in five years, have been hammered as the stock lost nearly a third of its value in the past week.
Compounding the sense of crisis, Petrobras management sent a letter to its workers urging them not to follow through on a strike planned for later in the week, saying "paralysis and pressure for adjusting prices" would hurt the company or country as a whole.
Under the deal announced by Temer, after the initial 60-day period price freeze, Petrobras will start adjusting diesel prices monthly, a switch from its current policy of daily price changes.
Petrobras said in a securities filing that the government had agreed to compensate it for any losses. But investors were skeptical.
Since May 18, when speculation began that the government might need to negotiate with truckers over diesel prices, Petrobras has lost 127.5 billion reais ($34.13 billion) in market value.
Its drop on Monday led a broader sell-off in Brazil's benchmark Bovespa index, which slumped 4.5 percent and is now in negative territory for the year.
The latest pricing announcement "suggests increasing risk that the government will interfere in Petrobras affairs again or force them to subsidize the domestic market again," said Morningstar analyst Allen Good, adding it was "a change in the market-friendly policy implemented in the last couple of years."
For years, Petrobras subsidized domestic fuel prices, boosting its debt load, a policy current Chief Executive Pedro Parente - whose days some investors fear may be numbered - has tried to reverse.
"There were rumors last week Parente might resign," Good said. "The latest decisions might force his hand."
Petrobras has denied the rumors, saying Parente has no intention of quitting.
The subsidy and tax cut measures represented Temer's latest concessions to the truckers, whose strike has won popular support even as it has severely hampered the flow of food, fuel and key exports in Latin America's largest economy.
A truckers' association behind the nationwide protest has told drivers to get back to work, but the government said progress had been slow and highway police said 556 highway blockades by protesters remained in place.
The moves also left Temer's government scrambling to win congressional approval for several tax measures needed to avoid breaking budget rules, a daunting endeavor ahead of October's congressional and presidential elections.
Brazilian farm groups, meanwhile, warned that production and exports of key commodities like coffee and soy would fall if the truckers continue to block roads.
Some 64 million chickens have starved to death as a result of the strike, meat group ABPA said on Sunday. Brazil is the world's largest chicken exporter. As many as 150 poultry and pork processing plants have stopped production for lack of feed and storage space, the association said.
Among other sectors, Brazilian steelmakers like Cia Siderurgica Nacional and Usiminas may lose up to 20 percent of their revenue in May due to the strike, analysts from XP Investimentos said in a research note.
Shares in food retailers Carrefour Brasil and GPA SA also fell as analysts warned their supply chains would suffer.
$1 = 3.7359 reais Additional reporting by Ana Mano, Gram Slattery, Paula Laier and Tatiana Bautzer; Writing by Bruno Federowski Editing by James Dalgleish and Tom Brown