LONDON/LAGOS, May 31 (Reuters) - Nigeria will launch a diaspora bond in the third quarter, the country's Finance Minister Olawale Edun told Reuters, and said the government was still committed to abolishing fuel subsidies.

The bond would be issued locally but denominated in U.S. dollars, Edun said in an interview, declining to detail how much the government was hoping to raise.

"We believe that Nigerians all over the world are holding sufficient dollars and we believe that they will key into the story of the Nigerian economic recovery and support it," said Edun.

"We will start small and build up from there, but we think that it is ... another arrow in the quiver so to speak alongside multilateral development finance, and of course, international capital market finance."

Issuing a Eurobond on international capital markets was still an option, but no concrete plans had been drawn up yet, the minister added.

Asked about the government's push to abolish fuel subsidies, Edun said this was "an ongoing situation".

Since taking office about a year ago, President Bola Tinubu has embarked on sweeping reforms, including slashing costly petrol and electricity subsidies and devaluing the naira currency twice within a year to narrow the gap between the official and parallel market exchange rates.

However, increases in pump prices have not kept up with their dollar cost, and the International Monetary Fund forecast that fuel subsidies could cost Nigeria up to 3% of GDP this year.

"We are definitely committed to removing all distortions, including fuel subsidy...it's an ongoing commitment," Edun said.

The impact of the ongoing naira weakness would also feature in the upcoming budget review, said Edun.

Dollar shortages have been a major constraint in Africa's largest economy. In the last budget, the government had based its calculations on a rate of 800 naira to the dollar.

However, two devaluations since Tinubu took office have seen the naira currency fall to record lows early this year. On Friday, the naira traded at 1495 to the dollar, LSEG data showed.

"It has thrown out the calculation somewhat and it's something that we'll look at," said Edun. (Reporting by Karin Strohecker in London and MacDonald Dzirutwe in Lagos; Editing by Ros Russell)