UPDATE 2-US offers Egypt budget aid after Mursi assurance on IMF

* Kerry acknowledges Egypt's "extreme needs"

* U.S. aid dwarfed by budget deficit

* Egypt projects huge fuel price increases - source

* Big price rises would provoke public fury

CAIRO, March 3 (Reuters) - The United States said on Sunday it would give Egypt $190 million in budget aid after Egyptian President Mohamed Mursi promised to take the painful economic reforms needed to secure an IMF loan.

U.S. Secretary of State John Kerry announced the funding after meeting Mursi and acknowledged Egypt's "extreme needs" as the Islamist government struggles with a slide in currency reserves to worryingly low levels and a soaring budget deficit.

Cairo says it wants to reopen talks with the International Monetary Fund on a $4.8 billion loan which was agreed in principle last November but suspended at Cairo's request due to violent street protests the following month.

"In light of Egypt's extreme needs and President Mursi's assurance that he plans to complete the IMF process, today I advised him the United States will now provide the first $190 million of our pledged $450 million in budget support funds," Kerry said in a statement at the end of a visit to Cairo.

Two years after the fall of Hosni Mubarak, Egypt is deeply split between the ruling Islamists and the leftist and liberal opposition parties, most of which have announced they will boycott parliamentary elections due to start next month.

Kerry described the funds as "a good-faith effort to spur reform and help the Egyptian people at this difficult time". On Saturday he said it was "paramount, essential, urgent" that the economy get back on its feet.

However, the sum is dwarfed by the budget deficit, which is growing rapidly as a slide in the Egyptian pound pushes up the cost of subsidising energy and food, much of which has to be imported using scarce dollars.

In a reform programme which Egypt is sending to the IMF, the government targeted a deficit for this financial year of 189.7 billion Egyptian pounds ($28 billion) or 10.9 percent of economic output. Even this assumes economic reforms are made, and the deficit would hit 12.3 percent of GDP without such action, it forecast.

The $190 million is part of a $1 billion pledge by U.S. President Barack Obama in 2011 after Egypt's popular uprising.

Egypt's political and economic turmoil has frightened away foreign investors and many tourists - a major source of the foreign currency it needs to pay for wheat and fuel imports.

On Sunday, a Cairo appeals court ordered that a politically-fraught retrial of Mubarak, his sons and top aides should begin on April 23, nine days before the elections are due to begin.

Mubarak, the first Arab ruler to be tried by his people after the uprisings that swept the Middle East and North Africa, was jailed for life for ordering the killing of demonstrators in 2011, but was granted a retrial by a Cairo court in January.

As Kerry completed his visit, protesters and security forces clashed in Cairo's Tahrir Square, centre of the revolution, as police tried to clear demonstrators and open the square to traffic, a witness said.

Unidentified assailants set fire to a police vehicle outside the nearby Egyptian Museum, where the treasures of Ancient Egypt are on display, the state news agency MENA reported.

APRIL IMF DEAL?

Finance Minister Al-Mursi Al-Sayed Hegazy was optimistic that an IMF agreement could be sealed before the four-stage lower house poll gets under way on April 22. "I expect and am hopeful this deal can be made before the elections," he told reporters.

Economists are divided between those who see such a timetable as over-optimistic and those that believe Egypt cannot hold out much longer without help.

Foreign currency reserves tumbled to $13.6 billon in January from $36 billion before the fall of Mubarak, and the Egyptian pound has dropped 8.2 percent since the central bank began auctioning dollars at the end of December.

Reserve figures due out this week are expected to show a continuing slide further below $15 billion - the amount needed to fund three months' imports, economists said.

However, the price of any deal is likely to be high. Egypt is sending projections to the IMF of huge increases in gasoline and diesel prices as it comes under pressure to curb soaring energy subsidies, a cabinet official said on Sunday.

The government plans to continue subsidised fuel prices for the most needy, under a rationing system to be implemented in July. However, Egyptians excluded from this scheme would face a jump in prices that could provoke public fury if implemented.

The official, who is part of the cabinet's economic team, told Reuters the increases would be put to an IMF team once it arrives in Cairo to negotiate the loan. "The new prices are included in the economic reform programme that will be presented to the IMF mission," said the official, who requested anonymity.

Petroleum Minister Osama Kamal was quoted by the state news agency MENA as describing the figures, which were also published in a local newspaper, as estimates and said that no decisions had yet been made.

According to the projections, the most commonly used 90 octane gasoline would leap to 5.71 Egyptian pounds ($0.85) a litre from 1.75, while diesel would go up to 5.21 pounds from 1.10.