By Alonso Soto

BRASILIA (Reuters) - On his first foreign trip since undergoing cancer treatment in Cuba earlier this year, Venezuelan President Hugo Chavez hailed his country's welcome by fellow South American leaders into a troubled regional trade bloc.

But the meeting in Brasilia on Tuesday at the concrete office building of President Dilma Rousseff was overshadowed by the controversial events that enabled Venezuela's entry into the Mercosur grouping and the protectionist policies and leftist slant that have come to dominate a bloc originally created to liberalize trade.

The leaders of Brazil, Argentina, and Uruguay feted Chavez during a ceremony ahead of Venezuela's formal inclusion in Mercosur later this month. But critics are aghast that they have done so despite the longstanding objections of Paraguay, a fourth member of the group and a country the other members suspended last month after conservative Paraguayan legislators impeached leftist president Fernando Lugo.

"What was once an economic bloc has now been reduced to a political sideshow," said Mario Marconini, a former Brazilian trade secretary who is now a business consultant in Sao Paulo. The inclusion of Venezuela despite the veto of a full-fledged member, "is a fatal blow to its economic credibility."

Most troubling to critics are the erratic economic policies and populist practices that Chavez has imposed in Venezuela.

Over more than 13 years in office the Venezuelan leader, who recently declared himself cancer free, has pursued a self-styled socialist economy that has scared away foreign investors and crippled productivity. His acceptance by Mercosur, opponents say, will give him one more thing to boast about as he campaigns for another six-year term ahead of Venezuela's presidential election in October.

Officially, the leaders in Brasilia hailed Venezuela's strengths as a major oil producer and an important market for everything from Brazilian machinery to Argentine wheat. In practice, though, Venezuela can't fully participate in the bloc until it agrees to accept common tariffs adopted by Mercosur, common agreements with third-party countries, and several other prerequisites that Chavez has failed to embrace since he first began talks for inclusion in 2006.

In private, Brazilian exporters say they are worried about doing more business with Venezuela. Though Brazil exports appliances, vehicles, and many other products to the Andean country, companies at times have problems with Venezuela's strict currency controls and onerous rules for the repatriation of profits.

BLOC IS ALREADY TROUBLED Continued...