Polish conservatives see new coalition, zloty hit

WARSAW, Sep 21 (Reuters) Poland's conservative leaders said today they were optimistic about pulling together a new majority coalition and avoiding early elections after they abruptly ended cooperation with a leftist ally.

Law and Justice ended its coalition with the Self-Defence party after a row over next year's budget and a decision to send more troops to Afghanistan, pushing Poland towards early polls.

''The dissolution of parliament will only be the subject of talks if we do not get a majority,'' Polish Prime Minister Jaroslaw Kaczynski told a news conference. ''For now, I am optimistic that such a majority can be found,'' he said.

Kaczynski sacked his deputy, leftist leader Andrzej Lepper, yesterday.

The zloty dived as investors predicted months of wrangling, but some analysts said the strength of the fast-growing economy was set to shield Polish assets from deeper losses.

They said, however, Lepper's departure would end pressure on higher spending that could blow the budget deficit above the pledged ceiling of 30 billion zlotys (.62 billion), or around 3 percent of gross domestic product.

The latest crisis in the biggest former communist nation that joined the European Union in 2004 follows anti-government riots in Hungary this week, heightening concerns that the region faces prolonged political instability and reform paralysis.

FURTHER TURMOIL Another Law and Justice official, Przemyslaw Gosiewski said overnight negotiations signalled that 14 deputies from Lepper's Self-Defence were likely to quit their party and work with the conservatives. Four have already switched.

He said he was optimistic about convincing the Polish Peasant Party, which has 25 deputies, to join the government. Two small nationalist groupings who are already backing the conservatives have 34 votes.

This would be enough to give the conservatives a slim majority in the 460-member lower house. Gosiewski acknowledged talks may yet fail and that early elections in November were still a strong possibility.

Peasant leader Waldemar Pawlak said he was open to starting talks with Law and Justice but that a better solution would be a government comprising Law and Justice, his group and the biggest opposition grouping, the pro-business Civic Platform party.

Analysts said early elections were not likely now as Law and Justice would be afraid to lose power.

A poll published today by daily Zycie Warszawy showed some 40 percent of Poles favoured holding early elections.

REUTERS DKA BD1616