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UPDATE 4-Five Vale staff and contractors arrested after Brazil dam disaster

Pedro Fonseca and Gram Slattery

(Adds employer of two arrested contractors in paragraph 4, comments by minister and presidential spokesman, other details)

RIO DE JANEIRO/BRUMADINHO, Brazil, Jan 29 (Reuters) - Three employees of Brazilian miner Vale SA and two contractors were arrested on Tuesday, prosecutors said, as a criminal investigation began after a devastating dam rupture expected to leave a death toll of more than 300 people.

Vale said it was cooperating with investigators in the case, which has enraged Brazilians and raised fresh questions about the company's commitment to safety after a similar dam burst just over three years ago at a nearby mine it jointly owned.

Two of those arrested were Vale's senior managers at the Corrego do Feijao mine, where a tailings dam broke on Friday, hammering the nearby town of Brumadinho with a flood of mining waste - according to a court order seen by Reuters. The job of the third Vale employee was not immediately clear.

Two other engineers, who worked for Germany's TUEV SUED on a contract where they attested to the safety of the Vale dam, were arrested in Sao Paulo, according to state prosecutors and a spokesman for the German firm.

Minas Gerais state investigators issued a total of five arrest warrants and seven search warrants on suspicion of murder, falsification of documents and environmental crimes, a judge's decision showed.

The collapse of the dam in the hilly, pastoral region has killed at least 65 people, according to firefighters' count on Monday night, with another 288 missing and likely dead.

The number of confirmed dead continued to mount on Tuesday, but state civil defense spokesman Evandro Borges said officials would not update their count until later in the day.

Brazil's Mines and Energy minister, Bento Albuquerque, said he had heard from state officials that Vale would deactivate all of its "upstream" dams, piling waste into a valley that is then dammed off.

Where that is not possible, the company will build new containment dams, he said. Vale declined to comment on the idea until after an afternoon meeting with the minister.

On Monday, a presidential task force contemplated forcing out Vale's management, but by Tuesday senior officials pushed back on the idea.

"There aren't conditions for any degree of interference. It would not be a good signal to the market," presidential chief of staff Onyx Lorenzoni said in a news briefing.

'DESTROYING MINAS GERAIS'

Chief Financial Officer Luciano Siani said Vale was doing all it could, offering money to mourners, extra tax payments to local government, a special membrane to remove mud from the river and major investments to make its dams safer.

Yet residents in the devastated town of Brumadinho have been unmoved, watching in shock and anger as one dead body after another has been pulled from the mud.

Following a deadly 2015 tailings dam collapse just a few towns over at a mine half-owned by Vale, the disaster remained unforgivable in the eyes of many Brazilians.

"Vale is destroying Minas Gerais," said Robinson Passos, 52, who lost a cousin and friends in Brumadinho.

"There's anger, sadness, everything," he said, holding back tears as he surveyed the destruction in Corrego do Feijao, a hamlet within Brumadinho that gave its name to the mine at the center of the disaster.

At the headquarters for the local mining union, which lost more than one in 10 members by organizers' count, treasurer José Francisco Mateiro blamed the company and authorities for putting him and his comrades at risk.

"They call it an accident but the design of those dams was premeditated," he said. "There have been warnings about all mining dams for a long time now."

Vale CEO Fabio Schvartsman said the facility was up to code and equipment had shown the dam was stable just two weeks before the collapse.

"We are 100 percent within all the standards, and that didn't do it," he said in a Sunday TV interview.

Siani said the company would donate 100,000 reais ($26,600) to each family that had lost a loved one, adding the company would continue paying mining royalties to Brumadinho despite a halt in operations there.

The company was building a membrane to stop the flow of mud now snaking down the Paraopeba River. A "bold" investment plan would speed the process of making dams more secure, he said.

Prosecutors and politicians have not been impressed.

Government ministers have said Brazil's mining regulations are broken. The country's top prosecutor said the company should be criminally prosecuted and executives held personally responsible. ($1 = 3.73 reais)

(Reporting by Gram Slattery in Brumadinho and Pedro Fonseca in Rio de Janeiro; Additional reporting by Marta Nogueira and Gabriel Stargardter in Rio de Janeiro, Lisandra Paraguassu and Ricardo Brito in Brasilia Editing by Brad Haynes and Matthew Lewis)