Preheat oven to 325F, with mixer, beat butter and sugar until combind. Add water,vanilla; beat well. Stir in flour and nuts.
Shape dough into 21/2 inch circles, using about 1 tbsp. dough for each.Top each with slightly rounded tsp.of mixture, shape dough around mixture. Place cookies seam side down on ungreased baking sheet. Bake 20 min. or until bottoms are lightly browned.
Cool on wire racks, place confectioners sugar in plastic bag. Add cookies, a few at a time, and shake gently until coated.