GREASE 2 large baking sheets. Combine 1/4 cup granulated sugar and cinnamon in small bowl; set aside.
STIR yeast into warm water in small bowl. Combine flour, dry milk, remaining 3 tablespoons sugar and salt in large bowl. Add 1/2 cup butter and yeast mixture into flour mixture. Stir until blended and sticky dough is formed.
PLACE dough on lightly floured surface; knead for 6 to 8 minutes, until dough is smooth and elastic, adding additional flour as necessary. Cut into 24 pieces. While working with dough, keep covered with plastic wrap. Roll each piece into a 16-inch long rope. To form pretzels, make a U-shape with the rope. Holding the ends of the rope, cross them over each other and press onto the bottom of the U and place on prepared baking sheets. Press ends of pretzel into pretzel dough. Brush with remaining 1/4 cup butter. Sprinkle with cinnamon-sugar mixture. Allow to rise in warm place for 15 minutes or until risen slightly.
PREHEAT oven to 375° F.
BAKE for 18 to 20 minutes or until golden brown. Remove from baking sheets to wir racks. Serve warm. Store remaining tightly covered.