UPDATE 2-Brazil to freeze $32 bln in budget-gov't

* Brazil budget freeze slightly above expectations

* Infrastructure, housing programs to be untouched

* Interest rates should keep falling-Mantega

BRASILIA, Feb 15 (Reuters) - Brazilian President Dilma Rousseff plans to freeze 55 billion reais ($32 billion) in budget spending in 2012, officials said on Wednesday, as part of an annual fiscal exercise designed to limit inflation and signal the government's commitment to austerity.

Most investors anticipated a freeze of roughly 50 billion reais. The total government budget in Brazil this year is expected to be about 1.5 trillion reais.

The freeze is usually welcomed by investors, who see it as a sign the government will keep spending under control despite pressure from the public sector.

The government's fiscal effort should give Brazil's central bank room to continue a cycle of interest rate cuts that began last August, Finance Minister Guido Mantega said at a news conference.

Brazilian governments typically set aside a percentage of the budget, usually in the tens of billions of reais, for "contingencies" every year. The money essentially gives the government extra flexibility to meet its annual budget targets by delaying or freezing a percentage of planned spending until the following year or later.

Most analysts said a budget freeze of between 60 billion to 70 billion reais was needed for Rousseff to meet an ambitious primary budget surplus target of 139.8 billion reais, or 3.1 percent of gross domestic product.

However, a spending freeze above last year's 50 billion reais is likely to keep investors at ease and reassure Rousseff's commitment to maintain fiscal discipline.

"It's a good result," said Luciano Rostagno, chief strategist for West LB in Brazil. "The government is increasing the efficiency of public spending instead of reducing investments."

A statement from Brazil's planning ministry said the government's flagship infrastructure program, known as the PAC, would not be affected by the spending freeze. The government's subsidized housing construction program for low-income Brazilians will also not be affected, the statement said.

Rousseff's government succeeded in achieving the primary surplus goal last year after two years of heavy spending by her predecessor, Luiz Inacio Lula da Silva.

Rousseff, a technocrat-turned-politician, is committed to show more fiscal austerity, but she will prioritize economic growth of at least 4 percent this year after the economy flatlined in the third quarter of 2011.

A slowdown in government revenues in the face of a weaker global economy and a drop in the price of key Brazilian exports could make it very difficult for the government to both bolster the economy and keep spending under control.