UPDATE 4-Ecuador's Correa extends state grip after vote win

(Adds market reaction, details)

By Alonso Soto and Frank Jack Daniel

QUITO, Sept 29 (Reuters) - Leftist President Rafael Correa vowed on Monday to tighten his grip over Ecuador's oil-based economy after sweeping to victory in a referendum on a new constitution that expands his powers.

Correa, a U.S.-trained economist and socialist ally of Venezuelan President Hugo Chavez, immediately reinforced his nationalist policies by pledging to get tough on foreign investors and increase state income in the OPEC nation.

The referendum win gives Correa control of the central bank, influence over top courts and allows him to run for re-election twice in a country where many voters are weary of long-term political instability.

Correa warned bond holders he could stop making debt payments if he ran short of money after spending oil revenue on health and education programs for the country's poor majority.

The former finance minister also told foreign oil companies he would prevent them from reducing their investments as he pushes them to change their contracts to hand over a greater slice of profits to the government.

"We are demanding fair compensation for all the years of high prices when they didn't give the country a penny," said Correa, Ecuador's most popular president in a generation.

He also outlined tough tax plans for the nascent mining industry, where he wants to attract gold and copper miners.

Correa easily won Sunday's referendum. Official results from 80 percent of polling stations showed around 64 percent of voters backed the constitutional reforms.

The new constitution is the keystone of Correa's campaign to increase the state's share of mining and oil wealth and curb instability in Ecuador, where he was elected two years ago pledging to wrest power from corrupt political elites.

Despite his firm stance on Monday, Correa backed away from more radical policies and reassured investors he would seek to avoid a debt default or the nationalizations popular with his allies Chavez and Bolivian President Evo Morales.

"I don't see a default scenario unfolding at any point unless treasury balances really dry up," said Lehman Brothers' Gianfranco Bertozzi. "With oil prices at $100 a barrel that scenario seems pretty unlikely in the next 12 months."

Ecuador's debt yield spreads, an important gauge of investors' aversion to risk, widened 9 basis points to 961 basis points above comparable U.S. Treasury notes on Monday.

NEW ELECTIONS

The new constitution may help lessen political instability in Ecuador, where street protests, the military and Congress have often undermined presidents.  Continued...