(Adds Prime Minister reaction)
By Almir Demirovic
LJUBLJANA Feb 28 (Reuters) - Slovenia's economy grew 2.1 percent year-on-year in the last three months of 2013, data showed on Friday, after the country narrowly avoided having to ask its euro zone peers for a bailout in December.
It was the first quarter of growth in the ex-Yugoslav republic after a run of eight quarterly declines.
Gross domestic product (GDP) fell 1.1 percent in 2013 over 2012. But in the last quarter of 2013, GDP rose 1.2 percent from the previous quarter.
The government has overhauled the largely state-owned banking sector by pumping 3.3 billion euros ($4.5 billion) into troubled local banks and cleaned up bad loans worth nearly 8 billion euros, almost a quarter of national output.
Prime Minister Alenka Bratusek said her government's efforts have helped turn around the economy and that GDP results "surpassed even the most optimistic forecasts".
She promised to press on with an overhaul of the economy, which is still 50 percent in state hands.
"Despite the optimism... the government is committed to capitalise on the reform momentum in order to achieve stable economic growth in the medium term," she said in a statement.
Saso Stanovnik, chief economist at investment firm Alta Invest, called the figures "encouraging", showing investment and household and business spending picking up.
"Partially this can be explained by the low base, especially since gross investments have been falling for several years. It seems sentiment is improving as the banking mess is starting to be resolved while export activity remains supportive," he added.
The statistics office said the main contributor to the growth was gross capital formation which rose 5.9 percent. Domestic consumption rose 3 percent while exports increased 3.7 percent, slightly less than in the previous quarter.
Bratusek's government plans to sell more than a dozen state-controlled firms including Telekom, the top national telecommunications group, the Ljubljana airport, flag carrier Adria Airways and No.2 bank NKBM. It has sold two smaller companies since October.
The IMF said it expects Slovenia's national output to shrink 1.1 percent in 2014, less than previously feared, as the cabinet tries to cut spending. The government's macroeconomic institute forecasts a 0.8 percent decline.
Hailed as a trailblazer for ex-Communist Eastern Europe, Slovenia - which nestles between Croatia, Italy and Austria - joined the European Union in 2004 and adopted the euro in 2007.
It was the euro zone's fastest growing economy that year but the global financial crisis a year later crippled exports, mostly to EU markets, and left it in recession, with only a brief recovery in 2011. ($1 = 0.7309 euros) (Writing by Maja Zuvela in Sarajevo; Editing by Igor Ilic and Ruth Pitchford)