* Bargaining sessions planned for next week
* Poor South Africans bear the brunt of strike
* Higher spending needed for wage deal concerns economists
By Jon Herskovitz and Peroshni Govender
JOHANNESBURG, Sept 3 (Reuters) - Striking South African state workers held small-scale protests on Friday as union and government negotiators prepared for bargaining next week aimed at ending the three-week walkout by about 1.3 million.
The unions rejected a government offer of 7.5 percent pay raises, nearly double inflation, and 800 rand a month for housing, with workers demanding a better offer.
The parties have a bargaining session planned for Monday where they will try to find a way to end the strike that has been the biggest in terms of lost man days in three years.
The strike has hit hardest the legions of poor who depend on state services to live and has quashed the euphoria the country felt after hosting the June-to-July soccer World Cup.
"It can go either way on Monday. But whatever the outcome it will be a united position from COSATU and the independent unions," said a union spokesman who did not want to be named.
The unions, who represent court clerks, prison guards, customs officials and nurses, are seeking pay rises of 8.6 percent and 1,000 rand a month for housing. Most are affiliated with COSATU, the country's largest labour federation.
Government officials said the state cannot afford the offer they have already put on the table and there is no more room in the budget to increase its offer, which would swell state spending by about one percent.
"A greater volume of taxpayer money will have to be spent on state employees, thereby detracting from much needed expenditure on improving education, health, transport and infrastructure," said NKC Independent Economists economist Christie Viljoen.
Pay and benefits is the biggest expenditure category in the state budget. In 2006/07, about 35 percent of tax revenue went towards it. That rose to about 47 percent in 2009/10.
COSATU put on hold a plan to have all its near two million members in vital industries including mining, go on a sympathy strike to allow the state workers to consider the new offer.
A prolonged strike by all COSATU members would put enormous pressure on the government to reach a deal to prevent any major blow to Africa's largest economy. (Additional reporting by Vuyani Ndaba; Editing by Louise Ireland)