UPDATE 5-Clashes in Athens as workers strike against cuts
* Police fire tear gas at stone-throwing youths
* Trains halted, flights grounded in nationwide strike
* State workers protest against wage cuts, layoffs (Updates protests, adds troika source, GDP figures)
By Renee Maltezou and Yannis Behrakis
ATHENS, Oct 5 (Reuters) - Riot police fired teargas at stone-throwing youths in central Athens on Wednesday as thousands of striking Greek state sector workers marched against cuts the government says are needed to save the nation from bankruptcy.
Youths broke up marble paving slabs in central Syntagma Square and hurled the chunks at police in full riot gear. The police responded by firing teargas grenades and chasing the protesters through the square and into surrounding streets.
Flights were grounded, schools shut and government offices closed in Greece's first nationwide walkout in months. Labour leaders call it the start of a campaign to derail emergency austerity steps launched last month by a government that has already imposed two years of tax hikes and wage cuts.
Greece's worsening debt crisis poses a risk to the euro currency and the international financial system. Reforms to Greek finances took on a new urgency this week after the government announced it would miss its 2011 deficit target.
Thousands of state workers, pensioners and students had gathered peacefully, beating drums and waving banners reading "Erase the debt!" and "The rich must pay". They marched into the square outside parliament where lawmakers were debating holding a referendum on the response to the fiscal crisis.
Reuters saw one bare-chested man covered in his own blood, rescued by bystanders after clashing with demonstrators. Protesters tried to storm an Economy Ministry building, shattering heavy glass at the entrance.
Sporadic scuffles between baton-wielding police and stone-throwing youths continued for several hours.
Police said at least two police and two civilians were hurt and 12 people detained. Violence was far milder than in June, when more than 100 people were injured in battles between demonstrators and police in Syntagma Square.
The strikes forced hospitals to run on emergency staff and the closure of some state schools. Trains were halted, and more than 400 flights were cancelled at Athens airport. The Athens Acropolis and major museums were shut.
Despite its new measures demanded by the EU and IMF, the government was forced to announce this week it would still fall short of its 2011 deficit target by nearly 2 billion euros, rattling global markets. Polls show nearly four of five Greeks expect a default on the massive national debt within months.
"We want this government out. They deceived us. They promised to tax the rich and help the poor, but they didn't," said Sotiris Pelekanos, 39, an engineer and one of the striking workers gathered in central Athens. "I don't care if we go bankrupt. We are already bankrupt."
Greece's main labour unions ADEDY and GSEE expect hundreds of thousands of people to walk off the job.
"They are not trying to save Greece. They are just killing workers," ADEDY Vice President Ilias Vrettakos said in a rally speech. "They should get the money from the rich, not from us."
Private sector workers did not participate in the strike but will take part in a bigger general strike on Oct. 19. Many in the Greek private sector resent perks of state workers, who are protected from layoffs by the constitution.
SCRAMBLE TO PROTECT BANKS
Greece's announcement this week that it would not meet its 2011 deficit target has put in doubt the viability of a 109 billion euro bailout agreed in July -- the second huge bailout in two years. If that deal must be renegotiated, European banks that hold Greek debt could suffer a heavy blow.
EU officials are scrambling to protect banks from a repeat of the crisis that froze the world financial system in 2008.
They have postponed until mid-November a decision on whether to approve the next 8 billion euro ($10.7 billion) tranche of bailout loans, giving negotiators more time to press the government to enact promised reforms.
A senior official from the "troika" of EU, IMF and European Central Bank negotiators in Athens since last week, told Reuters the tranche would probably be approved, but only if the government proves first it can enact reforms.
In more bad economic news on Wednesday, Greece's statistics agency produced revised numbers showing that recession began nearly four years ago, a year earlier than previously thought. The government now says the economy, which was to have resumed growth next year, will instead shrink by another 2.5 percent.
Finance Minister Evangelos Venizelos said on Tuesday Greek finances for this year could slip even further behind its target if the country failed to rally round the reforms and show "national cohesion and solidarity".
His government has promised to hold a referendum on the fiscal crisis this autumn but has not said what question Greeks would be asked. Parliament debated the referendum law on Wednesday as the protesters gathered outside.
Labour unions say the recession has been prolonged and deepened by government salary cuts, tax hikes and layoffs.
"The government is panicking and has no strategy," said Thessaloniki port (OLTr.AT) unionist Fani Gourgouri. "These measures are only extending poverty. We'd be willing to shoulder the cost and say 'yes' to austerity if they proceeded with reforms that would create jobs instead of cutting them." (Additional reporting by Ingrid Melander and Harry Papachristou; Writing by Peter Graff)
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