* South Sudan's vice president in New York to meet investors
* Government concerned by small rebellion in country's east
* South Sudan declared independence from Sudan in July 2011
By Michelle Nichols
NEW YORK, Oct 19 (Reuters) - South Sudan's vice president, Riek Machar, dismissed on Friday rumors of a planned military coup, saying it would be "unwise" for army officers to attempt a takeover of the year-old state.
The speculation was serious enough to prompt South Sudan's President Salva Kiir to visit the headquarters of Sudan's army (SPLA) this week to warn that any successful coup leaders would be isolated internationally, according to the Sudan Tribune.
During a visit to New York to meet with potential investors, Machar laughed off the rumors of a coup as not a serious threat and said that a recently detained general had not been arrested for planning a coup, but for other issues.
"When I first heard of it, I dismissed it," he told Reuters. "The nature of the state of South Sudan is borne out of an exercise of (the) right to self-determination. ... It would be unwise for military officers to say 'there is a takeover.'"
South Sudan declared independence from Sudan in July 2011. The move came six months after a referendum agreed to under a 2005 peace deal that ended decades of civil war that left more than 2 million people dead.
Distrust between the neighbors runs deep and tensions erupted into fighting along the border in April, when South Sudan's army briefly occupied the Heglig oilfield, which is vital to Sudan's economy.
The two countries agreed late last month to set up a demilitarized border zone and resume oil exports from the landlocked south after South Sudan shut them down in a dispute with Sudan over transit fees.
The deal failed to resolve problems including where to draw the final border, what to do with the disputed Abyei area and how to end rebellions in both countries that each government blames the other for backing.
Machar said the government was working to resolve a small two-year-old revolt in eastern Jonglei state that has been further fueled by a heavy-handed government bid to collect thousands of weapons left from the civil war.
Rights groups have accused the army of shooting, torturing and raping people during the campaign.
"All those who committed atrocities were apprehended," Machar said of those allegations. "It did cause resentment. ... We are concerned about it. That area is developmentally backward. We want it to join the rest of South Sudan in development instead of being theater for conflict."
"We don't want to start a new state with a rebellion," he said of efforts to reach peace in the east.
Machar accused Sudan of recently air dropping weapons to the rebels. He said he hopes with the "new mood" between the neighbors that led to the oil and border zone deal last month Sudan "will stop meddling in the affairs of South Sudan."
Sudan's government and military routinely deny South Sudan's accusations that Sudan is backing insurgencies.
Machar said he had been meeting with investors in New York to urge them to spend in South Sudan, one of the world's poorest countries, on agriculture to make the state the "breadbasket for East Africa."
"Our people, their expectations are so high, so great, that with the declaration of independence they want South Sudan to be at the same level with neighboring countries," he said. "This is our biggest challenge." (Reporting by Michelle Nichols; Editing by Will Dunham)