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* As Greece prepares first bond sale, ESM's Regling says it should not pay too much
* Regling says Greece's debt is sustainable for next 10 years
By Harry Papachristou
ATHENS, April 5 (Reuters) - The head of the euro zone's bailout fund has warned Athens not to pay investors too much when it returns to bond markets later this month, in comments to a Greek newspaper that hit newsstands on Saturday.
Greece is planning to sell bonds to investors for the first time since 2010, when it became the first euro zone country to be bailed out, and only two years after defaulting on its debts to private lenders.
Klaus Regling, head of the European Stability Mechanism (ESM), told the weekly newspaper To Vima it was "natural" that Greece wanted to test the markets, but warned it to not pay too steep a yield, to avoid increasing its debt load.
"Greek authorities must decide what price they're willing to pay," To Vima quoted him as saying.
Greek 10-year bond yields have fallen rapidly since briefly touching 41 percent two years ago, but are still around 6 percent. "(Greek debt) remains expensive," Regling said. "Every bond with such a high yield adds to the debt load."
Analyst estimates of Greece's potential market borrowing costs over five years range from 3.25 percent to 6.5 percent.
Athens aims to raise about 2 billion euros' worth of five-year bonds, according to banking and government sources.
Greece initially planned to return to bond markets with a small test issue in the second half of the year, after more tangible evidence that its ongoing, six-year recession is over.
But rapidly falling bond yields and pressure to produce an economic success before a key European election in May have persuaded Prime Minister Antonis Samaras and his fragile coalition government to bring the sale forward.
Investors will be encouraged by the fact that Greek debt has already been restructured in a way that makes it sustainable for a decade, Regling told To Vima.
"There's no debt sustainability problem for the next 10 years. This is very good news for investors," he said.
Greece's public debt currently stands at about 320 billion euros, or 175 percent of GDP. About 80 percent of it is in the hands of the European Union and the International Monetary Fund, at very low interest rates and on a long repayment schedule.
Regling's ESM, which holds about 40 percent of Greece's debt, is charging Athens about 1.5 percent to cover its own financing costs. ESM rescue loans to Greece have a 25-year repayment schedule and Athens starts paying interest on them 10 years after they are disbursed.
The EU and the IMF have so far extended 218 billion euros of bailout loans to Greece over the past four years and Athens stands to get 19 billion euros more by the end of the year.
On top of this aid, the European Central Bank has bought about 40 billion euros of Greek bonds, and Athens obtained debt relief worth about 170 billion euros in 2012, most of it by imposing big losses on private bondholders.
The EU has promised to provide further debt relief to Greece later this year, on condition that it continues meeting its budget and reform targets. The relief is estimated at about 4 percent of Greek GDP, to make sure its debt falls to a more sustainable level of 124 percent of GDP in 2020.
In addition, the Europeans have committed to reduce Greece's debt to "substantially below" 110 percent of GDP in 2022 if needed, and if Athens continues meeting its reform pledges. (Editing by Kevin Liffey)