* Likely next finmin Noda says no comment on euro levels
* PM-elect Kan to form cabinet on Tuesday
* Japan's latest economic trough was in March 2009 - govt
* Ruling party policy chief says important to beat deflation (Adds comments from ruling party policy chief)
By Rie Ishiguro and Leika Kihara
TOKYO, June 7 (Reuters) - The leading contender to become Japan's new finance minister, Yoshihiko Noda, said on Monday he wants to set a path for fiscal reform, a sign that he shares Prime Minister-elect Naoto Kan's zeal to fix the country's tattered finances.
Kan, a fiscal conservative with an image as a challenger to the status quo, was elected as Japan's next premier on Friday and Japanese media say he will choose Noda as finance minister when he forms a cabinet on Tuesday.
Succeeding unpopular Prime Minister Yukio Hatoyama, who quit last week ahead of an upper house election expected in July, Kan and his new finance minister will be under market scrutiny over how serious they are about reining in public debt, now around twice the size of the economy.
"As finance minister (Kan) is set to become prime minister, we want to set a path for fiscal reform," Noda, who is deputy finance minister, told Reuters.
Kan is expected to hold his first news conference as prime minister at 5 p.m. (0800 GMT) on Tuesday.
Financial markets do not expect any major shift in economic policy as Kan hands over the finance ministry baton.
The looming election could also keep Kan from promising bold reforms due to opposition from many within his party to any talk of tax hikes or big spending cuts, some analysts say.
But markets hope that under Kan, seen as having a better grip on economic affairs than Hatoyama, the government will get more serious about taking bolder steps to rein in public debt. Its first task will be to come up with a long-term fiscal reform plan by June as scheduled.
"Kan will probably seek balanced fiscal reform, one that doesn't end up hurting the economy. He understands the lessons Japan learned in the past, when the drive for fiscal discipline came at a bad time and pushed the economy in a deep downturn," said Naoki Iizuka, senior economist at Mizuho Securities.
"Markets so far aren't moving much on news of Japan's new premier. But Kan's policies are quite stock-market friendly. He'll seek an end to deflation, want a weak yen and will wait for the right timing in restoring Japan's fiscal health."
Aside from mapping out the long-term fiscal reform plan, Noda will also have to steer debate on the contentious issue of whether and when Japan should raise the sales tax from the current 5 percent.
Koichiro Genba, the Democrats' new policy chief, said the party should include in its upper house campaign platform that it will overhaul Japan's tax system, including the sales tax, after a general election that must be held by 2013.
Economists say any tax reform would include an increase in Japan's sales tax to pay for growing social security costs as the population rapidly ages.
Genba also told reporters on Monday that it was important for the country to beat deflation.
Japan's economy emerged from recession last year and grew at its fastest pace in three quarters in January-March, outpacing the euro zone and United States.
The Cabinet Office said Japan's latest economic trough, or the bottom of the downturn, was in March 2009, marking the end of a period of contraction that lasted for 17 months.
But analysts say the recovery is fragile with domestic demand still weak. The European debt crisis and an ensuing yen rise against the euro may also hurt the export-reliant economy.
The currency market is therefore keen to see if Kan's government will take a tougher stance on yen strength, but asked about renewed euro selling against the yen, Noda told Reuters: "I won't comment on currency levels."
The euro fell to its lowest in more than four years against the dollar and hit an 8-1/2-year low against the yen on Monday as short-term players sold it on increasing worries about the euro zone's debt crisis.
Credit ratings agencies have threatened to cut Japan's sovereign debt rating unless it comes up with a credible plan to rein in its public debt, which is the biggest among major industrial nations.
Noda, 53, has echoed Kan's calls for new bond issuance for the fiscal year from next April to be capped at the record 44.3 trillion yen ($482 billion) earmarked for this year.
Genba also said 44.3 trillion yen was a "good target." ($1=91.91 Yen) (Additional reporting by Hideyuki Sano, Chisa Fujioka; Editing by Chris Gallagher)