* EU inspectors see Greek deficit targets as hard to meet

* Rating agencies on alert for any deviation from targets

* Athens poised for bond issue, depending on markets

* European Commissioner Rehn to visit Athens next week

* Bernanke wants answers on Goldman role in Greece

(Adds quotes, market moves)

By Dina Kyriakidou

ATHENS, Feb 25 (Reuters) - EU inspectors and ratings agencies piled pressure on Greece on Thursday to deliver promised cuts to its huge budget deficit, as Athens prepares to borrow on jittery markets in the middle of a debt crisis.

The European Union inspectors, visiting Athens with IMF experts, have delivered a grim assessment of the nation’s economy, Greek government officials said.

Their message was that Athens will miss its targets for reducing the deficit without more of the spending cuts that have already brought Greeks out on to the streets.

“Negotiations continue because they see a big slippage in targets,” said a senior Greek finance ministry official who declined to be named.

But investors who must decide whether to buy more Greek debt when it issues a new 10-year bond in the next few weeks, are anxious, and Moody’s agency said it could downgrade the country’s rating if Athens fails to meet its budget promises.

“Sentiment is very nervous; very, very jittery,” said Charles Diebel, head of European rates strategy at Nomura. “It is all still about how bad this risk story gets.” [GVD/EUR]

Greece’s EU partners fear that the market volatility will spread to other euro zone countries which have big deficits to cover, such as Portugal and Spain.

DEEPER THAN EXPECTED

Inspectors from the European Commission and European Central Bank have told Greek authorities they see a deeper than expected recession and higher borrowing costs. Together these factors will make it even tougher to meet the targets.

Greece shocked its EU peers and markets when it revealed after October elections the deficit would be 12.7 percent of GDP in 2009, four times the EU limit.

The finance ministry official said the inspectors anticipate Greece can cut the deficit by about two percentage points, well short of a 4 percentage point target this year.

This would mean additional measures aimed at savings of about 4.8 billion euros ($6.47 billion). Any further steps would be announced after a visit next week by European Economic Affairs Commissioner Olli Rehn to Athens.

Greeks are already unhappy with government austerity measures. A one-day general strike crippled transport and public services on Wednesday, and tens of thousands marched through Athens to protest against EU-prescribed tax hikes and pay cuts.

However, analysts doubt such action will blow the government off course, and point to opinion polls suggesting that a majority of Greeks realise the situation is grave and will require painful measures. [ID:nLDE61N1TZ]

On the debt market the gap between yields on Greek 10-year bonds and the German equivalent hit 365 basis points on Thursday, up from 342 bps the previous day GR10YT=RREU10YT=RR and not far off the record of 400 bps.

This means the Greek bonds yield around 6.7 percent, more than double the 3.1 percent on German bonds, which are the euro zone benchmark. Athens will therefore have to pay a very high interest rate when it returns to the debt markets, putting yet more strain on the budget.

MORE NEEDED

The Greek economy contracted 2 percent last year, worse than the 1.2 percent expected, in the first recession in 16 years.

Moody’s Investors Service said on Thursday any changes in its Greek rating would depend on whether Athens was smoothly enacting its fiscal reform plans as promised. [ID:nTOE61O07J]

Pierre Cailleteau, head of Moody’s global sovereign ratings, said that if in the next couple of months he saw Athens is implementing its plan as promised, it could keep the rating where it is or stabilise the outlook.

“Or if we see, based on evidence, that there is a deviation from the plan, we will change our rating accordingly,” he told Reuters. “So a small deviation would lead to a small downgrade and a large deviation -- which we think is unlikely -- would lead to a large downgrade,” Cailleteau said. [nTOE61O07J]

Athens is preparing to make its second bond issue this year, and officials have indicated it aims to do so in February or early March. The country needs to raise about 20 billion euros to cover maturing debt in April and May.

EU partners are concerned the Greek debt crisis, which has pressured the euro, may spread to other countries on the euro zone periphery. The German debt management agency head told Reuters Insider Television this was an acid test for the group.

“I think if one of the 16 members would default, it would be a collapse of the whole system,” German Finance Agency managing director Carl Heinz Daube told a bond conference in London. [ID:nLDE61O1HH]

In Washington Federal Reserve Chairman Ben Bernanke said U.S. regulators were looking into how Wall Street firms such as Goldman Sachs GS.N helped Greece to arrange derivatives deals that critics say were used to disguise the size of its deficits.

“We are looking into a number of questions related to Goldman Sachs and other companies in their derivatives arrangements with Greece,” Bernanke said. [ID:nN25251885] (Additional reporting by Ingrid Melander, Kirsten Donovan, Glenn Somerville, Rika Otsuka, editing by David Stamp))