Varig, Latin America's largest airline, has been told by the Brazilian stock market regulator to restate its accounts for 2001 and 2002.

About 1.5bn reals (�300m; $447m) in tax credits, which can only be claimed by new companies, were improperly claimed as assets, the Brazilian Securities and Exchange Commission said.

The regulator said Varig will have to write off about 817 reals in assets and add 500m reals in pension liabilities to its accounts.

"We're looking at this and we're going to respond," said Varig spokesman Paulo Cesar Fonseca.

Mr Fonseca added the regulator's ruling would have no impact on flights or passengers.

The accounting blip is another setback for Brazil's financially troubled flagship airline, which is trying to renegotiate debts of at least 2.3bn reals.

As Varig is a vital transport provider for Brazil and the continent as a whole, its bankruptcy would be economically disastrous.

Trouble ahead

The ruling may make it more difficult for Varig to negotiate with its creditors, which include GE Capital, Boeing Capital and the Brazilian state-owned oil company Petrobras.

The airline, which has only made a profit once in the last 10 years, has been reporting large losses which it blames on debt-servicing costs.

Since late last year it has also had to pay in cash for the fuel it gets from Petrobras, and for Brazilian airport authority fees.

Varig's president, former central bank director Armin Lore, resigned in November following a dispute with the controlling shareholder over debt renegotiation.

The Ruben Berta Foundation, which represents most of Varig's 17,500 employees, holds an 87% stake.

Varig, which was founded in the 1920s, has more than 100 planes flying to 110 Brazilian cities, and to 27 destinations in 18 other countries on four continents.