(Adds Pinera's speech, recasts)

By Antonio De la Jara and Fabian Cambero

SANTIAGO, March 11 (Reuters) - Conservative billionaire Sebastian Pinera vowed to combat economic "stagnation" from years of center-left rule as he started a new term as Chile's president on Sunday, calling for austerity and support for the shrinking middle class in one of Latin America's wealthiest nations.

After receiving the presidential sash from outgoing socialist President Michelle Bachelet, Pinera, who served as president for four years before Bachelet, promised to help eradicate poverty and transform Chile into a developed nation within a decade.

He said in a speech his government would perform "major surgery" on the public health care system while strengthening welfare programs and trading the country's "bulldozer" approach to policymaking for one based on gradual change and consensus.

"To make progress on all these goals, it is fundamental we counter the stagnation of recent years, restoring fiscal equilibrium as well as our leadership, dynamism and ability to grow," Pinera said in a speech from a balcony at the presidential palace in the capital Santiago.

Pinera, 68, was elected in December with a strong mandate, becoming the newest member of a group of conservative leaders who have risen to power in South America in recent years - all of whom attended his inauguration.

A Harvard-trained economist and the son of a prominent centrist politician, Pinera made his fortune introducing credit cards to Chile in the 1980s.

"The state must be austere and efficient in the use of public resources... and must never be captured by bureaucracy, corruption or political operators," Pinera said.

Pinera's incoming finance minister, Felipe Larrain, said he would rein in government spending this year, after Bachelet's government left a bigger-than-expected fiscal deficit of 2.1 percent of gross domestic product instead of 1.7 as targeted.

"Without a doubt, it's bad news," Larrain told journalists at the inauguration. "We're going to have to get to work to examine and understand how this deficit increase happened."

POPULAR OPPOSITION

As a candidate, Pinera said he would gradually balance the budget over six to eight years.

To revive growth in the world's top copper producer, incoming Mines Minister Baldo Prokurica said Pinera's government would seek to rescue $50 billion in mining investments from bureaucratic red tape.

But Pinera will have to govern with a divided Congress and a prickly leftist coalition that has vowed to fight his plans to lower taxes and "correct" Bachelet's progressive policies.