Breaking News-RTRS-EXCLUSIVE-UPDATE 2-Malaysia 2010 budget gap 5.5 pct/GDP-source

KUALA LUMPUR, Oct 22 (Reuters) - Malaysia's government plans to announce a much bigger-than-expected reduction in its 2010 fiscal deficit when it lays out its budget on Friday in a move expected to support the ringgit and ease concerns over bond supply.
A source with direct knowledge of the process told Reuters that Prime Minister Najib Razak would unveil plans to cut the budget deficit to 5.5 percent of gross domestic product from a planned 7.6 percent this year, the biggest in two decades.
Economists in a Reuters poll had forecast the 2010 deficit would be 7.3 percent of GDP.
The prime minister also holds the finance ministry post and is due to announce in the budget that Malaysia's trade-dependent economy will shrink less than the expected 4-5 percent this year.
According to the source, Najib will forecast that Malaysia's economy will contract by 3 percent this year and that it will grow by 2-3 percent in 2010.