* Moody's cuts Greece's credit rating to A2 from A1
* Greek debt chief says action to help 2010 debt issuance
* Greek debt chief sees yield spraeds normalising
(Refiles with explanation in first paragraph)
ATHENS, Dec 22 (Reuters) - Moody's one-notch downgrade of Greece's credit rating to A2, a smaller move than markets were expecting, will help the country's debt issuance next year, the head of Greece's Public Debt Management Agency (PDMA) said on Tuesday.
Moody's was the third rating agency to downgrade Greece's credit standing on concerns over the country's soaring budget deficit and debt dynamics. It kept Greece on a negative outlook.
Moody's rating is two notches above that of Fitch and Standard & Poor's, which earlier this month cut their rating on the indebted country to BBB+, the euro zone's lowest.
"This (rating cut to A2) will help PDMA in executing its borrowing plan in 2010," PDMA head Spyros Papanicolaou told Reuters.
"Markets will see that Greek bonds are oversold, I expect a normalisation of bond yield spreads ahead," he said.
Moody's action came as a positive surprise on Tuesday as Greek markets were bracing for a more severe two-notch downgrade.
Greek shares were gaining 3.01 percent with the yield spread of 10-year Greek government paper over German Bunds tightening to 266 basis points from 285 a day earlier. "I believe Moody's rating better reflects the prospects of the Greek economy, given the Greek government's commitment to take the necessary measures to restore fiscal health and improve competitiveness," Papanicolaou said.
"This, I believe, will restore Greece's credibility," he said. "Already, spreads are narrowing."
Greece's socialist government has pledged to cut the deficit to 9.1 percent of GDP in 2010 from 12.7 percent this year.
(Reporting by Lefteris Papadimas, writing by George Georgiopoulos; editing by Stephen Nisbet)