Portuguese president asks Passos Coelho to form new government

LISBON (Reuters) - Portugal's president asked Prime Minister Pedro Passos Coelho on Tuesday to form a government which can ensure political stability following an inconclusive national election which denied the centre-right leader a parliamentary majority.

Economists say the outcome of Sunday's election, in which the hard left performed well, could thwart reforms the indebted country needs to bolster meagre economic growth after a steep recession in 2011-13.

President Anibal Cavaco Silva urged the political parties to show a spirit of compromise in the coalition negotiations that will now begin.

"It is fundamental that a stable and lasting government is formed ... It is up to the political parties ... to show openness to compromise, with a sense of responsibility, to ensure a solution for a sustainable government," he said in a televised address to the nation.

Passos Coelho's centre-right coalition won 104 seats in the 230-seat parliament, well short of a majority, meaning he will need to seek support from other parties to pass laws.

The main opposition Socialists won 85 seats.

The prime minister is now expected to attempt to secure the support of the Socialists for the guidelines of a 2016 budget, the most pressing legislative task as it needs to be presented by mid-October.

Analysts say the election could pave the way for greater political instability in Portugal, which endured deeply unpopular spending cuts and tax hikes during its debt crisis.

Even if the outgoing coalition remains the biggest force in parliament, overall the political pendulum swung to the left due to gains for the far-left, anti-austerity Left Bloc, which could pose a threat to economic reforms.

The outgoing government pledged to reduce the budget deficit this year to 2.7 percent of national output. The Socialists, while promising to ease up on austerity, have also promised to meet EU budget goals.

(Additional reporting by Sergio Goncalves; Editing by Gareth Jones)

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