Pegylated Liposomal Doxorubicin and Docetaxel in Treating Women With Locally Advanced Breast Cancer That Can Be Removed By Surgery

DISEASE CHARACTERISTICS: * Histologically or cytologically confirmed breast cancer using core biopsies * Locally advanced disease * Resectable disease * Fine needle aspiration cytology allowed and must demonstrate invasive adenocarcinoma * No more than 8 weeks since initial cytologic or histologic diagnosis of breast cancer * Tumor must meet the following criteria: * Palpable on clinical examination and confined to either the breast or to the breast and ipsilateral axilla * Measured clinically as greater than 2 cm in size (T2) * Patients with skeletal pain are eligible if bone scan and/or roentgenological examination fail to disclose metastatic disease * Suspicious findings must be confirmed as benign by x-ray, MRI scan, or biopsy * Hormonal status not specified PATIENT CHARACTERISTICS: Inclusion criteria: * Female * Menopausal status not specified * ECOG performance status 0-2 * Life expectancy ≥ 10 years * Platelet count ≥ 100,000/mm³ * ANC ≥ 1,500/mm³ * Hemoglobin ≥ 9.0 g/dL * Bilirubin normal * AST or ALT normal * Alkaline phosphatase normal * Serum creatinine normal * Negative pregnancy test * Fertile patients must use effective contraception (e.g., abstinence, intrauterine device, barrier device with spermicide, or surgical sterilization) during and for 3 months after completion of study therapy * Normal cardiac function by LVEF or MUGA scan * Patients with prior non-breast malignancies are eligible if they have been disease-free for ≥ 10 years * The following are allowed even if diagnosed within the past 10 years: * Squamous or basal cell carcinoma of the skin that has been effectively treated * Carcinoma in situ of the cervix that has been treated by operation only * Lobular carcinoma in situ of the ipsilateral or contralateral breast treated by segmental resection only Exclusion criteria: * Pregnant or lactating women * Male patients * Hyperbilirubinemia * Female patients with 1 or more of the following conditions: * Ulceration, erythema, infiltration of the skin (complete fixation), or peau d'orange (edema) of any magnitude * Tethering or dimpling of the skin or nipple inversion should not be interpreted as skin infiltration * Ipsilateral lymph nodes that are clinically fixed to one another or to other structures (N2 disease) * Bilateral malignancy or a mass in the opposite breast suspicious for malignancy, unless there is biopsy proof that the mass is not malignant * Suspicious palpable nodes in the contralateral axilla or palpable supraclavicular or infraclavicular nodes, unless there is biopsy evidence that these are not involved with the tumor * Nonmalignant systemic disease (e.g., cardiovascular, renal, or hepatic) that would preclude study therapy * Active cardiac disease that would preclude the use of doxorubicin hydrochloride, including any of the following: * Documented myocardial infarction * Angina pectoris that requires the use of antianginal medication * History of documented New York Heart Association class II-IV heart failure * Valvular disease with documented cardiac function compromise * Poorly controlled hypertension (i.e., diastolic BP \> 100 mm Hg) * Patients with well-controlled hypertension and on medication are eligible for study * Psychiatric or addictive disorders that would preclude obtaining informed consent PRIOR CONCURRENT THERAPY: Inclusion criteria: * Concurrent noncancer therapies allowed if used for conditions other than breast cancer * Adjuvant therapy after surgery allowed Exclusion criteria: * Prior radiotherapy, chemotherapy, immunotherapy, and/or hormonal therapy for breast cancer * Prior anthracycline therapy for any condition * Concurrent hormonal therapy including tamoxifen, aromatase inhibitors, or raloxifene * Concurrent sex hormonal therapy including birth-control pills or ovarian hormonal replacement therapy * Concurrent other cancer therapy * Concurrent herbal or alternative therapies for breast cancer