UPDATE 1-Argentina reverses natgas, power subsidy cuts

* Gov't reverses subsidy cuts that caused rate increases

* Opposition wanted to challenge increases in Congress

* Two-month measure to cost state about $100 million (Adds De Vido quote, details and background)

BUENOS AIRES, Aug 12 (Reuters) - Argentine President Cristina Fernandez has restored state subsidies on natural gas and electricity bills for two months to reverse unpopular rate increases, the government said on Wednesday.

Sudden increases in household bills have angered consumers already struggling with inflation, increasing political pressure on Fernandez following her heavy defeat in a national mid-term legislative election for senators and deputies in June.

"Acting in the people's interest, the president has decided to restore 100 percent of the withdrawn subsidies for the months of June and July," Planning Minister Julio De Vido told local radio, saying the move would cost about $100 million.

Energy demand peaks in June and July, the height of the southern hemisphere winter.

Opposition lawmakers, emboldened by the June 28 election result, said they would try to get the rate increases scrapped in Congress and a debate had been due to start in the lower house on Wednesday.

The government, which faces mounting debt obligations just as tax revenue slows, approved subsidy cuts last year as part of efforts to rein in spending.

Despite a swift economic recovery, natural gas and power rates had remained virtually frozen since a sharp economic and political crisis in 2001/02. (Reporting by Helen Popper and Karina Grazina; Editing by Theodore d'Afflisio)