BRASILIA, Aug 21 (Reuters) - Brazil extended tax breaks on computer and smartphone sales until the end of 2018, foregoing about 7.9 billion reais in tax revenues ($3.5 billion) next year, the Finance Ministry said on Thursday.

The policy of keeping the so-called PIS/Cofins payroll tax at zero for computers, smartphones, tablets, modems and routers was scheduled to finish at the end of 2014, but the ministry said in a note it will be continued for four more years.

Brazil is a growing market for computer and electronic devices, with over 270 million cell phones in operation, according to the Finance Ministry. Foreign companies such as South Korea's Samsung Electronics Co Ltd and LG Electronics INC are major players in the local smartphone market.

The extension is the latest in a flurry of government measures over the past few years to try and breathe new life into Brazil's stagnant economy. While they have not prevented Brazil from flirting with recession in recent months, they have cost it dozens of billions of reais in foregone revenues and paved the way for a debt rating downgrade earlier this year.

Thursday's announcement came six weeks before a hotly contested presidential race in which incumbent Dilma Rousseff is seeking re-election, and may help her hold votes among Brazil's surging middle classes. The tax break extension covers the full mandate of the next president.

The Finance Ministry said in a note that the estimated cost of the tax break "is more than compensated by an increase in output, sales and employment in the sector."

Sales of office supplies, computer and communication devices, a component of Brazil's main retail sales survey , rose 3.6 percent in the 12 months through June, down from about twice that pace at end-2013.

Shares of Brazilian computer maker Positivo Informatica SA were little changed on Thursday at 2.10 reais.

($1 = 2.2565 Brazilian reais) (Reporting by Silvio Cascione; Editing by Chizu Nomiyama)