Brazil's real slips as incoming govt looks to exempt $32 billion from spending cap

SAO PAULO (Reuters) - Brazil's currency weakened against the dollar on Thursday after the incoming administration of President-elect Luiz Inacio Lula da Silva proposed exempting some 175 billion reais ($32 billion) from the spending cap on next year's budget to pay for welfare programs.

The Brazilian real plunged more than 2% in early spot trading, weakening past 5.50 to the dollar, while interest rate futures jumped and local stock index futures slipped roughly 2%.

Earlier on Thursday, Lula shrugged off market reactions to his proposals and again criticized the country's spending cap. He said the government cannot only think about "fiscal responsibility". but also about "social responsibility".

($1 = 5.4935 reais)

(Reporting by Gabriel Araujo; Editing by Steven Grattan and Alison Williams)