UPDATE 2-Brazil primary surplus falls, fiscal goal under threat

* Surplus drops sharply, to well below analyst forecasts

* Missing target may tarnish gov't fiscal discipline credentials

* Surplus equal to 2.46 percent of GDP in 12 months to August

By Alonso Soto and Tiago Pariz

BRASILIA, Sept 28 (Reuters) - Brazil's primary budget surplus fell sharply in August from a year ago, central bank data showed on Friday, casting doubt on whether the government can meet its closely watched fiscal goal this year.

Brazil posted a consolidated primary budget surplus of 2.997 billion reais ($1.48 billion) in August, the central bank said on Friday, well below analysts' median forecast of 5.5 billion reais. Brazil posted a primary budget surplus of 4.561 billion reais in August last year and 5.57 billion this July.

In the 12 months through August, the primary surplus, which excludes debt servicing, equaled 2.46 percent of gross domestic product, down from 2.51 percent in July. It was the lowest 12-month trailing figure so far this year and marks a steep decline from the year high of 3.31 percent in February.

A tepid recovery in the world's sixth-largest economy has curbed tax revenues, jeopardizing President's Dilma Rousseff's $139.8 billion primary surplus target, which equals about 3.1 percent of GDP.

"This year is less favorable than 2011 to obtain fiscal results because the current international situation impacts the domestic economy and that moderation in activity is reflected in revenues," said Tulio Maciel, the central bank's head of economic research.

Maciel said, however, that an expected pick-up in the economy this quarter and next should bolster revenues and help the government achieve its full target.

In the first eight months of the year the government has reached only 53 percent of the primary target, meaning it needs to average more than 16 billion reais in surplus in each of the next four months to hit the target.

Missing the target could tarnish Rousseff's credentials of fiscal discipline and spoil her effort to keep the central bank's interest rates at record lows.

Treasury chief Arno Augustin and Central Bank Director Carlos Hamilton Araujo on Thursday reaffirmed their confidence that the government was on track to deliver the primary surplus target despite growing uneasiness within the government.

Three official sources told Reuters earlier this month that Brazil was in danger of narrowly missing its goal, likely forcing the government to use different accounting methods to reach it. The last time Brazil had to tweak the numbers was in 2010 after a surge in spending by Rousseff's predecessor, Luiz Inacio Lula da Silva.

Still, some ratings agencies and private banks say missing the fiscal target should not hurt the country's finances or prevent its debt burden from falling further in coming years.

"If this (fiscal) relaxation is related to the reduction in taxation, which is what the government is trying to do to reduce the cost of investment in Brazil, I don't think the markets will be particularly concerned with the government missing the target," said Andre Loes, chief economist for Latin America at HSBC in Sao Paulo.

He added that lower debt servicing costs and a robust fiscal position should continue to drag down the weight of the debt in Brazil.

For about a year now Rousseff has cut billions of reais in taxes for companies and consumers in a bid to revive an economy that has stalled since mid-2011. Her administration has said it plans to cut more taxes to reduce the country's sky-high costs of production and help the economy grow more in coming years.

The public debt-to-GDP ratio rose to 35.1 percent in August from 34.9 percent in July.

The central bank's Maciel said he expects the debt-to-GDP ratio to end the year at 34.8 percent.

The primary budget surplus is a gauge closely watched by investors because it measures a country's ability to service debt. It represents the excess of revenue over expenditures before interest payments are taken into account.

Overall budget balance, which includes interest payments, posted a deficit of 16.121 billion reais in August, above the 11.866 billion reais deficit in July.