(Adds comments from analysts)
By Jeff Mason and Roberta Rampton
WASHINGTON, May 22 (Reuters) - President Barack Obama will shuffle his cabinet on Friday, nominating San Antonio Mayor Julian Castro as secretary of housing and urban development and naming outgoing HUD chief Shaun Donovan as his new budget director, a White House official said on Thursday night.
The switch brings a high-profile Latino leader who is a rising star in Democratic politics into the Obama administration and moves a long-serving Cabinet member into the president's inner circle at the Office of Management and Budget.
Obama was set to make the announcement at 3:35 p.m. ET (1935 GMT) at the White House, flanked by Castro and Donovan, the White House official said.
"The President is thrilled that Secretary Donovan will take on this next role and believes that Mayor Castro is the right person to build on his critical work at HUD based on his work in San Antonio," the White House official said in a statement.
Donovan will take over from Sylvia Mathews Burwell, who is moving on to be secretary of health and human services. Burwell is awaiting confirmation by the Senate, and both Donovan and Castro must also be confirmed.
Donovan, 48, is highly regarded within the administration, and is seen as a low key, competent and hard worker who does not seek the limelight but has an eye for politics.
At OMB he is likely to be involved in talks with lawmakers to achieve a new budget agreement to ease the impact of automatic budget cuts known as the sequester.
"He's smart, quick, thoughtful, really knows what he's talking about and is interested in making government programs work better," said Robert Greenstein, head of the Washington-based Center on Budget and Policy Priorities.
"People think he's a straight shooter," Greenstein said, noting the trait would help Donovan in talks with Congress.
Donovan, who holds undergraduate and graduate degrees from Harvard University, was a leader within the administration in tackling the U.S. housing crisis, one of the triggers of the worst economic downturn since the Great Depression.
He was a chief negotiator in the historic $25 billion settlement reached with five of the nation's biggest banks and 49 state attorneys general to end a probe of abusive mortgage practices stemming from the housing bust.
Shortly after his re-election, Obama appointed Donovan to lead rebuilding efforts in areas that suffered damage by Superstorm Sandy, which ravaged the East Coast.
"Shaun Donovan is a consummate professional, thoughtful and analytical but also very politically aware," said Larry Summers, a former economic adviser to Obama, through his spokeswoman. "I expect he will make an excellent OMB director."