Serbia to borrow 850 mln euros from China for highways -FinMin

* Serbia to commission Chinese CRBC to construct roads -FinMin

* Loan deal to be arranged by end-2013 -FinMin

By Aleksandar Vasovic

BELGRADE, Sept 20 (Reuters) - The Serbian government will seek a long-term 850 million euro ($1.11 billion) loan from China this year to finance two modern highways in a bid to improve its run-down infrastructure, Finance Minister Mladjan Dinkic said on Thursday.

The Serbian government has already started talks with China's CRBC International Co. on the construction of two highways with a total length of about 200 kilometres to better connect central and southwestern regions with the rest of the country and the E75 pan-European highway, Dinkic said.

The project should be financed through an 18-year, low-interest loan from the Export-Import Bank of China.

"The government plans to complete talks on the loan by the end of the year and ... the construction could start in 2013," Dinkic said on the sidelines of a business forum in Belgrade.

The CRBC International Co. is already constructing a key bridge over the river Danube worth 170 million euros to connect Belgrade's municipalities of Zemun and Borca, under a deal signed with the previous government.

China also approved a 300 million euro loan two years ago to reconstruct a coal-fired power plant, while Chinese small investors have a growing presence in Serbia, especially in the retail sector.

Facing growing public debt of about 60 percent of gross domestic product this year and recession of up to 1 percent of GDP, Serbia has stepped up efforts to borrow from sovereign lenders both for its budget and infrastructure. The crisis in the euro zone, Serbia's main trade partner, has dampened demand for its goods and slowed investment inflows.

"The (Chinese) loan will be the single biggest taken during the duration of this government's (four-year) mandate," Dinkic said.

New Prime Minister Ivica Dacic said on Wednesday that Serbia should focus on boosting growth - including by attracting foreign investment - and stabilising the dinar rather than enforcing further spending cuts as recommended by the IMF.

The IMF froze a 1 billion euro ($1.3 billion) standby deal with Serbia's previous government, of which both Dacic and Dinkic were members, last year in a dispute over debt and spending plans.

Under a wider cooperation agreement signed in 2010 by the then-Serb President Boris Tadic and his Russian counterpart Vladimir Putin, Serbia also secured an $800 million loan from its historic ally to overhaul its dilapidated rail network.

In December it will start the construction of a part of the South Stream gas pipeline that will carry Russian natural gas to Europe, bypassing Ukraine, at an estimated cost of 1.5 billion euros ($1.96 billion).

Serbia also attracts substantial investment from within the European Union, which it aspires in time to join, although disputes over Kosovo, which declared independence from Serbia, have hampered membership talks. ($1 = 0.7658 euros)

(Editing by Catherine Evans)