By Harry Papachristou and Lefteris Papadimas

ATHENS, Nov 5 (Reuters) - Greece's new government pledged to save the country from bankruptcy by cutting the budget deficit while keeping electoral promises to help the poor, the highly indebted country's prime minister said on Thursday.

Greece aims to reduce its budget deficit by more than 3 percentage points of gross domestic product (GDP) next year but the ratio will still be three times larger than the 3 percent ceiling set for euro area members, the government said.

'We need to save the country from bankruptcy,' Prime Minister George Papandreou, who won an Oct. 4 election, told a televised cabinet meeting ahead of the publication of the 2010 draft budget on Thursday.

The budget shortfall will narrow to 9.4 percent of GDP in 2010 from 12.7 percent this year, he said. The economy will contract by 0.3 percent after falling into recession this year for the first time since 1993 with GDP down by 1.5 percent.

Papandreou said the draft budget would aim at re-establishing the confidence of the European Union and investors in the Greek economy after the country run budget deficits above the EU's ceiling for all but one year since joining the euro area in 2001.

MORE REALISTIC GOALS - ANLYSTS

The reduction of the deficit will be balanced between a cut in spending and an increase of revenues, including a crackdown on tax evasion and raising taxes on tobacco, the government said.

Neither the 10-year Greek debt yield spread nor five-year Credit Default Swaps (CDS) moved after the comments, according to Reuters data and CDS monitor CMA DataVision. The debt yield spread was steady at 138 bps at 1140 GMT and the CDS was also stable at 143 bps.

'The market has anticipated the figures, so there was no impact at all on Greek bonds yield spread,' said Theofanis Mylonas, head bond trader at EFG Eurobank.

Analysts said the deficit reduction target was ambitious but they said government's targets appeared as being more realistic than in previous years.

'The deficit reduction target seems quite ambitious, considering the conservative growth outlook for next year,' said Giada Giani, a London-based economist with Citigroup.

'At first sight, the growth forecast looks more realistic than what we used to expect from the previous Greek budgets,' said Diego Iscaro, an analyst at IHS Global Insight.

'The important thing is to see how the Greek government is planning to bring the deficit down next year. They need to show that they are committed to bringing the public account back to a sustainable path, given the lack of credibility.'

The European Commission sees Greece's GDP contracting by 0.3 percent next year and the deficit at 12.2 percent of GDP, it said on Tuesday. That forecast leaves Greece as one of only three euro member countries which would not see positive growth next year.

(Writing by Ingrid Melander; Reporting by Lefteris Papadimas, Harry Papachristou, Renee Maltezou; additional report by Tatiana Fragou and Angeliki Koutantou, Editing by Victoria Main) Keywords: GREECE BUDGET/PM

(ingrid.melander@reuters.com ; +30 210 337 6438; Reuters Messaging: ingrid.melander.reuters.com@reuters.net)

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