ROME (Reuters) - Senior ministers in Italy's government were expected to meet on Friday to discuss next year's budget, two sources said, as investors concerned about the government's spending plans sold Italian bonds.

Ahead of the meeting, which was scheduled to begin at 0900 GMT according to the sources, Deputy Prime Minister Matteo Salvini said the budget would include tax cuts and pensions reform.

Both moves would likely increase Italy's large public debt, unless balanced by corresponding spending cuts which the government has so far not detailed.

"The (2019) budget will not include all planned measures immediately, but there will be the first steps towards a flat tax and a radical overhaul of the pensions system," Salvini, who leads the far-right League, said in a TV interview.

There is no news conference scheduled to follow the meeting and no official announcement is expected.

Salvini's remarks came as Italian government bonds were selling off for a second day in a row on continued speculation over the government's budget plans.

Yields on Italian 10-year bonds rose to briefly hit 3 percent for the first time since June 11, and the closely watched spread over German debt was at its widest since late June, at 257 basis points.

The ruling coalition, made up of the anti-establishment 5-Star Movement and the League, have pledged to cut taxes, roll back a 2011 pension reform that raised the minimum retirement age, and boost welfare spending.

Economy Minister Giovanni Tria, a former economics professor who is not a member of either of the ruling parties, has repeatedly said the government will be cautious, and aim to reduce the huge public debt.

Italy's debt, at around 132 percent of gross domestic product, is the highest in the euro zone after Greece's.

Tria has promised to coordinate the government's tax and spending initiatives with the European Commission, which monitors how European Union member states comply with EU fiscal rules.

However, some investors fear he could be sidelined or even forced to resign over the budget, which must be presented to the Commission by October.

(Reporting by Francesco Guarascio, Gavin Jones and Giuseppe Fonte; Editing by Catherine Evans)

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