UPDATE 1-Brazil's Rousseff denies budget cuts

* Rousseff denies plans to cut spending, inflation target

* Says wouldn't discuss plans before election

* Report mentions austerity measures (Recasts with denial, Rousseff quotes)

SAO PAULO, Aug 23 (Reuters) - The frontrunner in Brazil's presidential race denied media reports on Monday that she was planning to slash public spending and lower the country's inflation target if she were elected in October.

Folha de Sao Paulo newspaper had reported that the ruling Workers' Party candidate Dilma Rousseff may try to reduce spending by cutting the size of automatic wage increases for public sector employees.

"There is no such discussion within the campaign, it would be absurd. How can we discuss (such) issues without having been elected," Rousseff said.

Recent opinion polls show that Rousseff, President Luiz Inacio Lula da Silva's former chief of staff, could win the election in a first-round vote on Oct. 3 against the main opposition candidate Jose Serra.

Folha also said Rousseff's campaign is studying whether to lower the country's annual inflation target to 4 percent from 4.5 percent, a move that would signal Rousseff's determination to keep inflation in check in a country with a long history of runaway prices.

"I saw the news. I'm sorry, but I will deny it," she said without providing any details.

Workers' Party president Jose Eduardo Dutra raised the issue of possible spending cuts in an interview with Reuters on Friday. He said a possible Rousseff government would tighten the belt if necessary to ensure ambitious budget targets [ID:nN20143295] and drew a parallel to austerity measures Lula adopted during his first year in office in 2003.

Rousseff suggested such measures were not necessary because Brazil was in better shape than in 2002. But some analysts said Rousseff was bound to deny the need for unpopular austerity measures until after the election.

With public spending rising faster than federal tax revenues, Brazil's primary budget surplus -- which excludes interest payments on debt obligations -- is running well below the target of 3.3 percent of gross domestic product that Rousseff intends to maintain.

Rousseff, a former energy minister in the Lula government, had already hinted at who some of her potential Cabinet members would be if she were elected, Folha said.

They include Edison Lobao, who succeeded Rousseff as energy minister when she became Lula's chief of staff, though Folha did not specify in which capacity he would serve. Other potential Cabinet members include Antonio Palocci, Lula's first finance minister, and Luciano Coutinho, the president of national development bank BNDES, Folha said.

Central bank President Henrique Meirelles could also get a Cabinet post in a Rousseff administration, according to Folha, which said he does not want to stay at the central bank. (Reporting by Todd Benson, Elzio Barreto and Fernando Cassaro; writing by Raymond Colitt; editing by Jackie Frank)