Danish election set to reshape government

COPENHAGEN, Nov 11 (Reuters) Denmark's centre-right prime minister has lost the solid lead he had when he called an early election last month and whatever the result of Tuesday's vote it will reshape the Nordic country's government.

Anders Fogh Rasmussen, fighting for a third term on the back of strong economic growth, is level in polls with new Social Democrat leader Helle Thorning-Schmidt, who aims to be Denmark's first woman prime minister and wants to stop planned tax cuts.

Even if Rasmussen's Liberal Party comes first, he faces the prospect of forging a difficult coalition that would need to bring together an anti-immigrant party and a centrist group led by a Syrian-born Muslim.

Rasmussen told Reuters he believed he would be able to put together such an alliance if need be after the November 13 vote, which he called 15 months before it was due.

''In free and democratic elections you can never be sure but I hope that we will win and believe the chances that my government will be able to continue are good,'' he said.

Rasmussen, 54, has done most of what he pledged to voters six years ago -- slashing the number of immigrants granted asylum by almost 80 per cent with some of the toughest immigration laws in Europe and cutting taxes.

Under him, the country of 5.5 million has enjoyed an unprecedented economic boom bolstered by North Sea oil money.

But polls show the most burning issue this time is the fate of the welfare system.

TAX CUTS OR WELFARE This is where Social Democrat Thorning-Schmidt, 40, has gained ground, arguing that Danes have to choose between tax cuts and better welfare. She has said she will roll back tax cuts Rasmussen plans for next year.

Both have similar pro-EU foreign policies and would keep troops in Afghanistan. Seeking to disarm his rival in key areas, Rasmussen this year pulled ground troops from Iraq and proposed to increase public spending to improve the quality of welfare.

Although no opinion poll has yet indicated Thorning-Schmidt and her allies can reach a majority of 90 in Denmark's 179-seat national assembly, many suggest her once-dominant Social Democrats will do better than at the last election in 2005.

''The best that the opposition has mustered (in polls) is 86 mandates, not quite enough for a working majority, but good enough at least to write two speeches for election night'', said Kurrild-Klitgaard of the University of Copenhagen.

But the party that looks set to decide the shape of the new government is the centrist New Alliance, formed just six months ago.

Led by Syrian-born Naser Khader, it wants better treatment for refugees and lower taxes.

Khader has said he will support Rasmussen to form a government, but clearly has demands that conflict with the other likely coalition party, the anti-immigrant Danish People's Party of Pia Kjaersgaard.

The task does no appear impossible though, analysts say.

Kjaersgaard may prefer conciliation to the prospect of losing influence for years while support for Khader's party has slipped recently and he may not want to force another election soon.

REUTERS KK BD1750