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UPDATE 1-Greece plays down financial impact of any F-16 jet deal

* Greece in talks to upgrade up to 95 F-16 jets

* Cost seen at 1.1 billion euros over a decade- govt spokesman

* Spokesman says "no reason for concern" over bailout targets (Adds quotes, details)

ATHENS, Oct 19 (Reuters) - A potential deal with the United States to upgrade dozens of Greece's F-16 fighter jets is not expected to harm its fiscal progress and should not worry its EU lenders, a Greek government spokesman said on Thursday.

Defence spending has been reduced during Greece's seven-year debt crisis, which shrank the size of its economy by more than a quarter and drove its jobless rate to nearly 28 percent.

"It (the deal) is not expected to impact in any way the country's progress on fiscal targets or the fiscal balance of its budget," spokesman Dimitris Tzanakopoulos told reporters.

Discussions have progressed but the deal over the Lockheed Martin fighter jets upgrade has not yet been sealed, Tzanakopoulos said.

Greece has about 160 F-16 fighter jets. Any deal would involve ugrading about 85 to 95, he added.

The upgrade is not expected to cost more than 1.1 billion euros ($1.3 billion), a sum which would be paid in annual instalments of about 110 million euros over a decade.

"It is the cheapest and most appropriate solution to upgrade our air defence," he said, adding that Athens has paid dozens of billions euros in past decades to purchase such jets.

Greece's current EU bailout programme, its third since 2010, ends in August and the leftist-led government has cut pensions, increased taxes and implemented unpopular reforms to meet targets.

Greek media reported on Thursday that European Union lenders were concerned about the possible arms deal. Asked about the reports, Tzanakopoulos said Athens was ready to provide any information to the Commission.

"There is no reason for any concern," he said. "It is logical that the EU Commission would want to be briefed and it will get all the necessary information, if requested."

The potential deal came to light during Prime Minister Alexis Tsipras's visit to the White House this week.

Greece spends about 2 percent of its gross domestic product - roughly 3.5 billion euros - on defence, more than the EU's average, largely due to long-standing tensions with its neighbour and fellow NATO member Turkey.

Spending on arms is expected to reach 475 million euros in 2018, according to Greece's 2018 draft budget. Asked whether Greece, as it emerges from crisis, was returning to past habits of overspending on arms, Tzanakopoulos said: "The government has no intention to reiterate the mistakes of the past." ($1 = 0.8458 euros) (Reporting by Renee Maltezou and George Georgiopoulos; Editing by Keith Weir)