The Japanese government plans to issue 10 trillion yen ($128 billion) in reconstruction bonds and cut spending by 3 trillion yen to pay for more projects to rebuild the devastated northeast, the Nikkei business daily reported on Sunday.

Investors are counting on reconstruction spending to help the world's third-largest economy pull out from a slump caused by a massive earthquake and tsunami in March and to resume moderate growth in the third quarter.

A government source told Reuters last week it was planning additional spending of 13 trillion yen for reconstruction projects, on top of a combined 6 trillion yen already set aside in two extra budgets.

The source had said the government was considering issuing special bonds, scaling back other spending plans and selling national assets. The Ministry of Finance was planning on five-year bonds, with the government considering raising taxes to repay them, according to the source.

The Nikkei said about 8-9 trillion yen of the 13 trillion yen would be spent to improve infrastructure, while 3 trillion yen would go toward building schools and creating jobs.

The draft blueprints for the government's reconstruction projects will be finalized this month by a reconstruction task force headed by Prime Minister Naoto Kan, the paper said.

(Reporting by Chang-Ran Kim; Editing by Yoko Nishikawa)

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