Thousands rally in support of Brazil's Lula

BRASILIA, Brazil, Aug 16 (Reuters) - Thousands of students, unionists and peasants demonstrated in Brazil's capital on Tuesday in a show of support for President Luiz Inacio Lula da Silva as he struggles to manage a deepening corruption scandal.

The protest, the first of two scheduled for this week, was the first mass rally in Brasilia since the scandal over bribes paid to Congressmen broke out in June.

"We don't want Lula to fall. If he goes it's a setback for all Brazil's social movements," said Gustavo Petta, president of Brazil's national students union.

Demonstrators, many with faces painted in the yellow and green of Brazil's flag, said they wanted Lula to stay in office but urged him to loosen tight economic policies to ease poverty.

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AND LULA ANSWERS

BRASILIA, Brazil, Aug 16 (Reuters) - Brazil's government will raise its 2005 public spending limit by one billion reais ($420 million), the planning ministry said on Tuesday.

The measure, which will be made in a presidential decree on Wednesday, follows investor fears a bribery scandal could weaken President Luiz Inacio Lula da Silva's grip on public spending or prompt him to loosen unpopular fiscal controls to maintain public support.

About half of the billion reais in spending was announced in July but never received a presidential decree needed to be disbursed.

Lula will sign a decree on Wednesday to free up funds frozen to meet budget surplus goals, the ministry said.