* As financial crisis deepens, Lebanon set for sovereign default
* Economic crisis seen as biggest risk to stability since war
* PM says Lebanon can't meet debt repayments (Recasts after Diab speech)
BEIRUT, March 7 (Reuters) - Lebanon cannot meet its forthcoming debt maturities, the prime minister announced on Saturday, setting the heavily indebted state on course for a sovereign default as it grapples with a major financial crisis.
In a televised address to the nation, Prime Minister Hassan Diab declared the suspension of a bond payment of $1.2 billion due on March 9, saying foreign currency reserves had hit dangerously low levels and were needed to meet basic needs.
Diab said Lebanon's public debt had reached around 170% of gross domestic product, meaning the country was close to being the world's most heavily indebted state.
"The debt has become bigger than Lebanon can bear, and bigger than the ability of the Lebanese to meet interest payments," he said. "In light of the current situation, the state cannot pay the coming maturities ...
"The Lebanese state will strive to restructure its debt in line with the national interest by holding fair, well-intentioned negotiations with all lenders," he added.
The default will mark a new phase in a crisis that has hammered the economy since October, slicing around 40% off the value of the local currency, denying savers full access to their deposits and fuelling unrest.
The crisis is widely seen as the biggest risk to Lebanon's stability since the end of the 1975-90 civil war.
Lebanon has a total of some $31 billion in dollar bonds that sources told Reuters on Friday the government would seek to restructure in negotiations with creditors.
(Reporting by Tom Perry, Ellen Francis and Laila Bassam in Beirut; and Tom Arnold and Marc Jones in London Writing by Tom Perry; Editing by Kevin Liffey)