UPDATE 3-Japan stimulus plans include $4.9 bln business support-draft
* Japan PM Abe sets priority on economy in new govt
* Govt counting on fiscal spending to boost economy
* Govt to sell more than 5 trln yen in new debt-sources
* Large debt burden could limit fiscal spending (Adds details on budget funding)
By Yuko Yoshikawa
TOKYO, Jan 7 (Reuters) - Japan's new government will set up schemes worth nearly $5 billion to boost businesses, including helping them buy foreign companies, according to a draft economic stimulus package seen by Reuters on Monday that could be approved this month.
Prime Minister Shinzo Abe has made reviving the economy his top priority after his Liberal Democratic Party (LDP) won elections last month, combining aggressive monetary easing with fiscal spending to encourage investment and spur growth.
His spending promises have raised concerns that Japan's public debt burden, already the worst among major economies, could deteriorate further. Some economists say structural reforms might have a bigger impact after years of stop-start growth.
The Development Bank of Japan (DBJ), a state-backed lender, will administer a 150 billion yen ($1.7 billion) lending scheme to encourage firms to develop new technologies and collaborate on new business lines, the draft showed.
The stimulus package would also establish a 200 billion yen fund with the Japan Bank for International Cooperation (JBIC), another state-sponsored lender, to encourage foreign mergers and takeovers.
It also includes 83 billion yen in loan guarantees and low-interest-rate loans for small firms, the draft showed.
A LDP sub-committee approved the draft on Monday, and it could be approved by the Cabinet as soon as this week.
The government will set aside 100 billion yen for the lending scheme with the DBJ in an extra budget, and the state-backed lender will use its own capital for the remaining 50 billion yen, according to the draft policy .
Government expenditure for the scheme with JBIC will total 70 billion yen. Lending from JBIC and private-sector banks will account for the remaining 130 billion yen, the draft showed.
Abe had earlier instructed the finance minister to disregard limits set by the previous government that capped new debt issuance at 44 trillion yen, which has raised concerns about fiscal discipline.
The government will sell more than 5 trillion yen in new bonds for the stimulus, sources told Reuters, which would push issuance above the 44 trillion yen cap.
The remaining funds will come from unspent money from last fiscal year's budget and money originally allocated to servicing existing debt, the sources said.
The government in coming days will compile a 12 trillion yen extra budget with up to 10 trillion yen for stimulus and public works, the sources said. The lending schemes with DBJ and JBIC would be included in the 10 trillion yen.
Senior members of the LDP have said they want to spend some of the stimulus on repairing roads, tunnels and public schools, raising concerns the LDP is falling back on the excessive public works spending that was the hallmark of its more than half a century of nearly non-stop rule. ($1 = 88.0400 Japanese yen) (Writing by Stanley White; Editing by Simon Cameron-Moore, John Mair and Ron Popeski)