East Timor leaders meet to choose new PM

DILI, June 27 (Reuters) East Timor's leaders were meeting today to discuss who would be the next prime minister after the resignation of Mari Alkatiri appeared to cool political tempers and raise hopes for an end to over two months of turmoil.

The State Council, an appointed body that advises the president, met as thousands of Timorese who have camped out in the capital staging daily protests began drifting back to their homes.

The protests peaked last week after damaging revelations in an Australian TV documentary linked Alkatiri to a plot to arm a civilian militia.

He had been under fire anyway for more than two months for mishandling a dispute in the army that spiralled into widespread looting and violence in which at least 20 people died.

The violence only ended with the arrival of a 2,500-strong Australian-led intervention force.

Alkatiri's ruling Fretilin party -- which holds 55 of the 88 seats in parliament -- is believed to have nominated a new premier, who must be asked to form the next government by President Xanana Gusmao after the state council meeting.

Names being touted include the current deputy premier, Ana Pessoa, labour minister Arsenio Bano and health minister Rui Maria de Arauzo.

A non-Fretilin unity candidate could be foreign minister Jose Ramos-Horta, although he has said he would only do the job as a last resort.

Whoever is named, few expect major changes in policy - particularly as the state budget is due to be presented on Friday.

Ramos-Horta said yesterday that the budget -- although just a modest 415 million dollars will include relatively big spending on social infrastructure projects that could help heal the wounds caused by the recent violence.

The new government will also have to prepare for a scheduled election before May next year.

REUTERS SY PC1031