* Finance minister vows economic overhaul, deficit cuts
* Says no plan to sell bonds to China
* In 2010, EU will set deadline for Greek deficit cut
* Moody's says fears over Greece misplaced
(Updates with Moody's statement)
By John O'Donnell
BRUSSELS, Dec 2 (Reuters) - Greece's finance minister sought to reassure nervous investors and his counterparts from the European Union on Wednesday that the country's economy would return to a sustainable path thanks to reforms and fiscal cuts.
Greece faced a spike in the cost of selling bonds in recent weeks, compared to other countries that use the euro currency, reflecting investor concern over the government's ballooning budget deficit and mounting public debt.
"I can assure you that neither Italian nor other banks have reason to worry about Greek government bonds," Finance Minister George Papaconstantinou told a news conference during a meeting of EU finance ministers.
"Any scenarios having to do with instability in the Greek economy are completely unfounded," he added.
The remarks chimed with a statement from rating agency Moody's, which said investors' recent concerns that the Greek government was facing a liquidity crunch were unjustified.
However, Moody's added that longer-term erosion of the country's growth potential could hurt its creditworthiness.
On borrowing, Papaconstantinou said Greece had no plan to sell bonds to China, as reported by a website in Athens.
"There is no such plan in the works. At the same time it is very clear that, like every country, we are looking at any possible diversification regarding our borrowing needs," he said.
Investors grew calmer about Greece on Wednesday as the premium they demanded to hold 10-year government bonds rather than benchmark German Bunds fell to its lowest in two weeks.
This was partly thanks to euro zone officials' statements late on Tuesday that Greece would avoid bankruptcy.
BUDGET DEFICIT DEADLINE
Papaconstantinou reiterated Greece's new Socialist government would push through a string of reforms, including those on taxation, the pension system and statistics, that would help the country cut its budget deficit.
The budget gap is expected to swell to 12.7 percent of gross domestic product this year.
"Greece today is pursuing the kind of policies that will ... bring the economy back to a sustainable path," he said.
He said Greece would inform the European Commission in January about its mid-term plans to cut the deficit, which the government wants to lower to 9.1 percent of GDP next year.
Euro zone ministers will then set a deadline for Greece to bring the gap below the EU ceiling of 3 percent of GDP.
Many other countries were expected to receive deadlines of between 2012 and 2014/15 for cutting their budget gaps to beneath that level, as proposed by the European Commission in November under EU budget rules, the Stability and Growth Pact.
On Wednesday, the ministers were set to conclude that Greece had not taken effective action to reduce its deficit in line with their previous recommendations.
That paves the way towards stepping up disciplinary action against Athens to the last stage before sanctions in February. (Writing by Marcin Grajewski, editing by Dale Hudson) ((marcin.grajewski@thomsonreuters.com; +322 2876830; Reuters Messaging: marcin.grajewski.reuters.com@reuters.net))