By Kim McLaughlin
REYKJAVIK (Reuters) - Iceland's prime minister was holding talks with his party on Friday to discuss calls for an early election amid growing protests demanding that he quit to take responsibility for a financial collapse.
Geir Haarde and senior members of his Independence Party were scheduled to meet at 12 p.m. British time to respond to demands for a spring election from Foreign Minister Ingibjorg Gisladottir, head of the junior party in the ruling coalition.
On Thursday, police used teargas on demonstrators for the first time since protests against the North Atlantic island's entry into the NATO alliance in 1949.
Protests had been held weekly since the crisis broke last year, but since Tuesday have been held every night. Police said the latest demonstrations overnight had been peaceful.
The global financial crisis hit Iceland, population 320,000, in October, triggering a collapse in its currency and financial system under the weight of billions of dollars of foreign debts incurred by its banks.
The demonstrators want Haarde, the central bank governor and other senior officials to resign. Some senior figures in his party also favour an early election, but Haarde has so far vowed to defy plunging popularity and stay on.
Gunnar Helgi Kristinsson, University of Iceland political science professor, said Haarde's party may opt to postpone next week's congress for several weeks to better prepare for a spring election, or stay silent until he has met Gisladottir.
"Or, if he (Haarde) faces significant opposition from his party, he may choose to step down," Kristinsson said.
Gisladottir was returning to Iceland on Friday from Sweden, where she was getting treatment for a brain tumour.
Kristinsson said it was unlikely that Haarde and other leaders too closely connected with crisis would stand if an early election was called.
But he said it was also unlikely that Haarde would call an election on Friday because his party would not have enough time to select new leadership and prepare a campaign in the 45 days allowed before the next election.
He said the likeliest date for an early election was April or May. The next election is scheduled for 2011.
Haarde's spokesman, Kristjan Kristjansson, said he believed Haarde would make a statement after the meeting.
Besides its economic woes, Iceland also faces a strategic question over whether to join the European Union, for which public support has risen during the crisis.
A Capacent Gallup poll published on Friday found that only 38 percent wanted to join the EU, compared to more than 50 percent in October, at the height of the crisis.
The economy is set to shrink 10 percent this year and unemployment is surging. To stay afloat last year, Iceland negotiated a $10 billion (7 billion pounds) aid package crafted by the IMF and effectively froze trade in its currency.
(Additional reporting by Kristin Arna Bragadottir; Editing by Kevin Liffey)
