VILNIUS (Reuters) - Lithuania's main center-right opposition party came first in a parliamentary election on Sunday but was set for tough coalition talks to form a government to deal with a looming economic slowdown.
The vote in the ex-Soviet state, a European Union and NATO member since 2004, was set to end seven years of Social Democrat rule amid anger over double digit inflation and fears the global credit crunch and financial crisis could hit growth and jobs.
A key target for Lithuania is also eventually to enter the euro zone. The outgoing government said this would be possible in 2011, but the slowing economy is a challenge to that goal.
With all votes counted from the 1,910 districts in the second round, the center-right Homeland Union won a further 26 seats to add to 18 in the first round two weeks ago.
This would give it 44 seats, well short of a majority in the 141-seat parliament and leading to the need for coalition talks.
The center-left Social Democrats, in power since 2001, came second after both rounds with 26 seats, but Homeland Union has said it will not form a government with its traditional rivals.
"I see a very good chance to form a working government for the cause of change," Homeland Union leader Andrius Kubilius told reporters.
"I had personal experience in 1999-2000, when we also had a crisis and I think the new government will be of the same type," he added, referring to when he was earlier prime minister.
Kubilius hopes for a coalition majority of 79 seats.
He is to hold talks with the National Resurrection Party, led by a TV talent show host and which was formed only a few months ago. It won 16 seats in all.
He was also to include two smaller center-right groups -- the opposition Liberal Movement and the Liberal and Center Union, in the outgoing coalition. They together won 19 seats.
Despite coming second, Prime Minister Gediminas Kirkilas, leader of the Social Democrats, refused to concede defeat. He said the best government would be a "rainbow coalition" with the Homeland Union, despite the latter's objections.
All four potential coalition party leaders gathered together as the final results were coming in on Sunday night, but said formal talks would start on Monday.
Kubilius told reporters his party wanted the posts of finance minister, economy, defense and foreign affairs, with the rest being shared by coalition partners.
Kubilius has said he would soften the blow of the slowdown by reducing personal income tax, at the same time closing other tax loopholes so budget revenues do not suffer too much.
He has said he would allow a budget deficit of about 1 percent of gross domestic product (GDP), below the limit set by the European Union of 3 percent of GDP.
Relations with Moscow could become cooler as the center-right has reacted most sharply to what it sees as a newly aggressive Russia after the conflict with Georgia.
But the new government faces likely growing dependence on Russian energy resources after a planned shutdown of the Soviet-era Ignalina nuclear power plant at the end of 2009.
(Reporting by Nerijus Adomaitis, additional reporting by Patrick Lannin; editing by Michael Roddy)