UPDATE 2-Brazil 2011 budget foresees 5.5 pct economic growth

* 2011 budget growth forecast more optimistic than markets

* New primary budget target is nominal

* Sees Selic rate at 10.75 pct at the end of 2011

* Sees investments of 52 billion reais in 2011 (Adds primary budget surplus target and byline)

By Isabel Versiani

BRASILIA, Aug 31 (Reuters) - Brazil's economic growth will probably slow by a full percentage point next year, according to government budget estimates for 2011, reflecting the impact of higher borrowing costs and a global slowdown.

Latin America's largest economy will probably expand 5.5 percent in 2010, less than the 6.5 percent growth the government estimates, the Planning Ministry said on Tuesday in its 2011 budget proposal.

Investors and analysts are expecting growth to top 7 percent this year, the fastest annual expansion in more than a decade.

Yet the projection in the budget estimates for 2011 is more optimistic than those of market analysts in a weekly central bank survey, who see Brazil's economy growing 4.5 percent in the coming year.

The government also expects to spend 52 billion reais in investments ($29.6 billion) next year, according to the budget. Last year, the 2010 budget was reported as earmarking 46 billion reais for investment spending, excluding that for state-run companies.

The budget predicts the Selic, or the central bank overnight lending rate, will end 2011 unchanged from its current 10.75 percent, the ministry said.

The central bank announces its interest rate decision on Wednesday but is seen keeping borrowing costs on hold, ending a 200-basis point tightening cycle that began in April.

Gross domestic product data for the second quarter on Friday will give a glimpse on the extent the economy slowed in the second quarter, following extraordinary growth in the first three months of the year.

Next year's targeted primary budget surplus, a key measure of the government's ability to service its debt, is to reach 125.5 billion reais ($71.56 bln).

Unlike previous years, the government announced a target in nominal terms and not as a percentage of gross domestic product.

If the economy grows faster than 5.5 percent, the target would fall below its equivalent of 3.2 percent of GDP, the Planning Ministry said.

But the move was no indication of easing budget discipline, he added.

"If GDP grows more, the target will be smaller. But if it grows less, it'll be bigger," he said.

Brazil's government is targeting a primary surplus of 3.3 percent of GDP this year, more than a full percentage point above the 2.03 percent for the surplus in the 12 months through July. See [ID:nN26189174] for story.

($1=1.754 reais) (Writing by Ana Nicolaci da Costa; Editing by Padraic Cassidy and Leslie Adler)