Portugal Socialists say ready to form leftist government

LISBON (Reuters) - Portugal's caretaker centre-right prime minister and the head of the opposition Socialists made rival offers on Tuesday to form the next government, exacerbating the country's political stalemate following this month's inconclusive election.

The political uncertainty risks undermining a nascent economic recovery in a country which exited an international bailout only last year.

Socialist leader Antonio Costa said after meeting Portugal's president that he was serious about forming a government with the support of the Communist Party and the Left Bloc which would have a stable majority in parliament.

But caretaker premier Pedro Passos Coelho, whose centre-right bloc won most votes in the Oct. 4 election but fell short of a majority, said he still expected to be named prime minister.

"We have informed (the president) that following contacts that we have had with the Communist Party and the Left Bloc ... there are conditions to form a government with majority support in parliament," Costa told reporters, adding that the centre-right grouping could not offer such a guarantee.

Echoing his comments, Left Bloc leader Catarina Martins said naming Passos Coelho as prime minister would be "a waste of time" and said she expected an agreement with the Socialists to be formalised in the next few days.

In a sign of rising tensions, Portugal's caretaker deputy prime minister Paulo Portas attacked Costa's announcement.

"It is extroardinary to see a political leader (Costa), seeking his survival, to consider the vote of the people a detail and parliament a mere formality."

Both Passos Coelho and Costa said it was now up to President Anibal Cavaco Silva to decide how to proceed.

Portuguese presidents have always invited the leader of the party with most votes to form a government and it must then present a programme to parliament. If that programme were to be rejected, the president would then most likely turn to the second biggest party, which would be the Socialists.

MARKETS STAY CALM

Many political analysts still say a leftist government led by the moderate Socialists is unlikely because the other two parties are much further to the left and have been fiercely critical of the harsh austerity imposed on Portugal under its bailout with the International Monetary Fund and the European Union.

Passos Coelho would need the backing of the Socialists to be be able to pass laws. On Tuesday he said a prolonged political stalemate would hurt investment.

The reaction of financial markets to Portugal's political woes has so far been muted because investors assume that budget consolidation under EU rules will continue regardless.

Costa has promised to respect budget rules while also calling for some relaxation of austerity measures.

(Editing by Axel Bugge and Gareth Jones)