* China sets GDP growth target of 7/86.5 pct, same as 2017 goal
* Pledges to continue crackdown on risks in financial system
* China cuts budget deficit to 2.6 pct of GDP from 3 pct last year
* China sets CPI target at around 3 pct vs 3 pct last year
* China to see reasonable growth in M2 this year - Li
BEIJING, March 5 (Reuters) - China aims to expand its economy by around 6.5 percent this year, the same as in 2017, while pressing ahead with its campaign to reduce risks in the financial system, Premier Li Keqiang said on Monday.
The goal was kept unchanged, even though the economy grew 6.9 percent last year and exceeded the government's target, suggesting Beijing will deepen its push to contain risks from an explosive build-up in debt.
Sources previously told Reuters that China will maintain its growth target at "around 6.5 percent".
Economists had already expected the world's second-largest economy to lose some momentum this year as the government continues to rein in corporate debt, while a war on pollution and a cooling property market will weigh on manufacturers and real estate investment.
But last week's sharp escalation in trade tensions with the United States has jumped to the top of the list of uncertainties facing China this year.
President Donald Trump said last week he would impose hefty tariffs on imported steel and aluminium to protect U.S. producers, risking retaliation from major trade partners like China, Europe and Canada and sparking fears of a global trade war.
Premier Li said China opposes protectionism and supports the settlement of trade disputes through negotiation, but will "resolutely safeguard" its legitimate rights and interest.
Yet, China will keep its currency, the yuan, basically stable, Li said in remarks to the opening of the annual meeting of parliament.
"China has set a generally tightening policy tone for the coming year, and financial deleveraging will take centre stage. As such, we believe that the market has somewhat under-priced the downside risks for China's economy this year," said Zhou Hao, analyst at Commerzbank in Singapore.
Li said China's economy and financial risks "are generally under control" but more needs to be done to resolve issues such as local government debt.
He also said China will improve supervision over shadow banking, internet finance and financial holding companies, and step up risk controls at financial institutions.
DEFICIT TARGET TRIMMED
While maintaining "pro-active" fiscal policy, Li said China will cut its budget deficit target to 2.6 percent of gross domestic product (GDP) this year from 3 percent in 2017.
The cut, the first since 2012, suggests Beijing will be more watchful of fiscal spending as it tries to slow the rapid accumulation of debt, without tapping the brakes so hard that it risks a sharper slowdown in economic growth.
Most analysts had expected the 2018 budget deficit target would be largely maintained or come in slightly lower.
"The actual figure is even lower than we expected...a 2.6 percent deficit would be about 2.3 trillion yuan ($363.5 billion) in absolute terms, which equals to the 2016 level," said Betty Wang, senior China economist at ANZ in Hong Kong.
"It shows the government's determination to control leverage in the economy."
Heavy government infrastructure spending was a major driver behind China's forecast-beating growth last year, but Beijing has been cracking down in recent months on some rail and road projects launched by local governments as it seeks to curb their massive debts.
MONETARY POLICY NEUTRAL
Li also reiterated that China will keep its prudent monetary policy neutral, with easing or tightening only as appropriate.
China will keep monetary policy neither too loose nor too tight, and will maintain reasonably steady liquidity, he said.
While the central bank has been gingerly raising money market rates as part of its crackdown on riskier lending practices, it has also kept markets generally well supplied with funds whenever there are worries of a deeper cash squeeze, and bank lending hit a fresh record last year.
Li also said he expects reasonable growth in broad M2 money supply and total social financing this year, without stating a target.
The National Development and Reform Commission, the state planner, said in a separate report that outstanding total social financing (TSF) and M2 growth will grow at a similar pace this year as in 2017.
TSF grew 12 percent last year, in line with the target, but M2 growth slowed to 8.2 percent, below the goal of around 12 percent. ANZ had expected both targets to be set at 10 percent or lower this year.
"If I remember it right, it's the first time that they don't have a specific target in two decades. It shows authorities now prefer a tighter stance on monetary policy," Wang said.
"Overall policy wise both monetary and fiscal policy will be tighter than last year, because the government wants to control financial leverage and overall debt levels for the broader economy."
China also set its consumer price index at "around 3 percent" compared with 3 percent last year, as widely expected.
Stability will be the watchword this year as President Xi Jinping pursues his vision of turning China into a "modestly prosperous" nation by 2020 and into a "strong power" on the world stage by 2050.
Ahead of the meeting of the National People's Congress (NPC) this year, authorities have stepped up a crackdown on big-spending conglomerates, after a year of financial deleveraging that has targeted risky shadow financing and curbing corporate debt.
The NPC, which will end on March 20, is expected to approve the restructuring of various government departments and the appointment of several key officials including a vice president, vice premiers and a new central bank governor. ($1 = 6.3281 Chinese yuan renminbi) (Reporting by Kevin Yao and Sue-Ling Wong Additional reporting by Xiaochong Zhang, Elias Glenn, Stella Qiu, Cheng Fang, Lusha Zhang, Shu Zhang, Cate Cadell, Tom Daly, Muyu Xu, Yawen Chen Writing by Ryan Woo Editing by Kim Coghill)