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UPDATE 2-Bolsonaro confirms new welfare plan, says it won't breach cap

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(New throughout, adds details, comment from Bolsonaro; adds byline, changes dateline, previous SAO PAULO)

By Ricardo Brito

BRASILIA, Oct 20 (Reuters) - Brazilian President Jair Bolsonaro on Wednesday confirmed plans for a new welfare program that boosts spending, but insisted it would not violate the government's constitutional spending limits, contradicting reports a day earlier that roiled financial markets.

Bolsonaro told an audience in the state of Ceara that the new welfare program, called 'Auxilio Brasil', would pay 400 reais ($72) per month to poor families, but the government has the "responsibility" to make it fit the spending cap. He provided no details about how that would happen.

"Yesterday we decided to raise the old 'Bolsa Familia' to 400 reais, given that the emergency cash aid is coming to an end... We have the responsibility to make these resources come from within the budget," Bolsonaro said.

The Brazilian real extended gains against the U.S. dollar in Wednesday trading after Bolsonaro's comments, strengthening around 1%, while the Bovespa stock index was up 0.4% in early afternoon trading.

The current "Bolsa Familia" welfare program pays families an average of about 190 reais and has been budgeted at 34.7 billion reais for next year. The additional spending for the more generous benefits Bolsonaro wants would cost an additional 50 billion reais, part of which could exceed the spending limit, a source with knowledge of the matter told Reuters on Wednesday.

On Tuesday, investors were rattled by reports that the program would breach the spending cap, and Brazilian equities tumbled along with the real currency. After the selloff, the government called off an officially scheduled event to announce the program.

According to two sources at the Economy Ministry, the announcement was canceled due to disagreements on how much of the spending cap would be breached for the program to go through. One of the sources said the administration had previously agreed on getting 30 billion reais from outside the cap to fund 'Auxilio Brasil', but there are ongoing talks for a potential bigger amount.

Economy Minister Paulo Guedes, who was fighting for a smaller program that would fit under the cap, canceled a trip to Sao Paulo where he had been scheduled to appear at two events, his press office said.

($1 = 5.5356 reais) (Reporting by Gabriel Araujo in Sao Paulo, Ricardo Brito and Marcela Ayres in Brasilia; Editing by Brad Haynes, Christian Plumb and David Gregorio)

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