The move should help Lula pass his economic agenda, including tax hikes, political analysts said, but he still faces an uphill battle to get Brazil's conservative-led legislature to sign off on constitutional amendments or left-leaning social measures.
"For investors, it's the best of both worlds - a government strong enough to avoid pitfalls in Congress, but not strong enough to pass legislation seen as harmful or anti-business," said Mario Sergio Lima, senior analyst at Medley Global Advisors.
Lawmaker Andre Fufuca, who belongs to powerful lower house Speaker Arthur Lira's Popular Party (PP), became sports minister, while Silvio Costa Filho, of the Republicans party, took over the ministry of ports and airports, as announced by Lula a week ago.
The PP and Republicans both supported Lula's far-right predecessor Jair Bolsonaro and have made clear they will not be joining the government coalition, even though they now control ministries.
"Lula will still have to negotiate vote by vote. The economic agenda will advance, but other social issues will face difficulties," said Andre Cesar at political risk consultancy Hold Assessoria Legislativa.
The government cannot count on the bulk of the PP and Republicans votes, but will get a sufficient majority to increase taxes needed to reduce the fiscal deficit, Lima said.
The appointment of Fufuca as sports minister was not popular with members of Lula's Workers Party, who recalled that Fufuca had voted in 2016 for the impeachment of Lula's hand-picked successor Dilma Rousseff.
However, Fufuca's predecessor, Olympic medalist and Brazilian volleyball hero Ana Moser, was more philosophical, saying she understood she had to move aside to allow Lula's minority government to gain "governability."
(Reporting by Anthony Boadle; Editing by David Holmes)
By Anthony Boadle
