Twelve people were killed on Friday in an early morning shootout between police and bank robbers in a small town in northeastern Brazil, the state governor's office said.

Five hostages, including two children, died in the shootout, local media reported, when police interrupted a gang trying to rob ATMs at two bank branches on the main street in Milagres in the interior of Ceará state.

"Our information is that 12 people died, among them six of the bandits," Kelia Jacome, spokeswoman for the governor, said by telephone. Earlier, another spokesperson had said six policemen had died.

The G1 news website, quoting Milagres Mayor Lielson Landim, reported that the five dead hostages belonged to the same family. Their car had been hijacked on a nearby highway and taken into town by the armed gang.

Broadcaster GloboNews said it was the family of a local businessman and that two suspects had been arrested by police.

The gang escaped in two vans without taking any money, G1 said. A local press report said the body of one bank robber was found in an abandoned vehicle.

Police were searching for gang members with the help of a helicopter, the mayor's office said.

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