* Rupiah up nearly 1 pct, biggest one-day gain since June 2016
* Fiscal deficit seen smaller, finmin says govt has enough cash
* Finance ministry meets 40 bond investors, dealers
* Bank Indonesia again signals likelihood of a rate hike (Adds comments from finance minister, market updates)
By Maikel Jefriando and Tabita Diela
JAKARTA, May 11 (Reuters) - Top Indonesian officials on Friday broadened their efforts to calm investors anxious about the rupiah currency and capital outflows, asserting that market volatility would be temporary and the country’s economic fundamentals are solid.
The rupiah, which earlier this week fell to its lowest level in 2-1/2 years, had its biggest one-day gain since June 2016 while yields on 10-year Indonesian bonds eased.
Markets in Southeast Asia’s largest economy have been hit harder than others in Asia in the past three months as U.S. bond yields rose and the dollar rallied, deepening concerns about capital outflows.
Analysts say there’s little Indonesia - and other vulnerable emerging markets - can do as long as U.S. yields and the dollar rise.
But in a bid to bolster Indonesian assets, officials have indicated it’s likely the central bank will soon raise interest rates and talked up the financial position.
On Friday, Finance Minister Sri Mulyani Indrawati said the 2018 state budget deficit is expected to be below its initial outlook, at 2.14 percent of gross domestic product (GDP), instead of 2.19 percent, meaning the government may not have to sell as much bonds.
She also said the government has sufficient cash, more than the level it had in the same period last year.
“Our condition is not as bad as other countries,” Indrawati told a news conference after a meeting with 40 bond dealers and major investors.
The rupiah gained nearly 1 percent on Friday, ending at 13,945 to the dollar, and the main stock index extended a rally, rising 0.8 percent.
The 10-year Indonesian bond yield, which hit 7.340 percent - the highest since March 2017 earlier on Friday, eased to 7.248 percent on the day’s closing.
Investors’ risk appetites got a boost after U.S. inflation data soothed worries of faster rate hikes by the Federal Reserve, while at home, hawkish comments by Bank Indonesia (BI) helped supported prices.
The finance ministry has sold fewer bonds than targeted in latest auctions and on Tuesday turned down all bids - worth 7.19 trillion rupiah ($515.60 million) - as investors were asking for “out of ordinary” yield levels.
Luky Alfirman, head of the ministry’s financing and risk management office, said the government was “comfortable” that movements in bond yields were in parallel with the global markets.
Bank Indonesia (BI) gave another signal it may begin to raise the benchmark rate from 4.25 percent, where it has been since September. Governor Agus Martowardojo said there’s ample room for a rate adjustment.
Kartika Wirjoatmodjo, chief executive of PT Bank Mandiri , told reporters the market has become “calmer” after efforts by the government and central bank to soothe it.
“What’s important in the medium term is we must follow the Fed’s rate direction closely so that there’s no lagging,” he said, referring to rate hikes by the Federal Reserve.
The rupiah is vulnerable to outflows because of a high percentage of foreign ownership in Indonesian bonds. The country runs a current account deficit that is partly financed by portfolio inflows. ($1 = 13,945 rupiah) (Additional reporting by Gayatri Suroyo and Fransiska Nangoy; Editing by Jacqueline Wong and Richard Borsuk)