Hungary's ruling Socialists meet to pick new PM

BUDAPEST, March 27 (Reuters) - Hungary's ruling Socialists will convene on Friday to pick a candidate for prime minister and the liberal Free Democrats, their only potential ally, urged swift action as they said time was running out to cut a deal.

The Socialists, who rule in a minority and need the Free Democrat votes for a majority, will meet to draw up a list of potential candidates after their earlier choices either withdrew or were rejected by the liberals.

"In my opinion this has to be decided today," Istvan Szent-Ivanyi, a senior Free Democrat who is a member of the party's negotiating team, told public television M1 on Friday.

"It doesn't make sense to drag this on because the country is in deep trouble and the atmosphere surrounding these talks is deteriorating."

Hungarian politics was thrown into turmoil on Saturday when Prime Minister Ferenc Gyurcsany announced that he would step down and hand over power in early April.

Hungary, whose economy is seen declining by 4.5 percent this year, needed a $25.1 billion IMF-led rescue package late last year to avoid financial collapse.

As the country's recession deepens, most analysts said the government needs swift measures to prevent a budget deficit overshoot.

The Socialist party has scrambled to find a suitable replacement to tackle the country's biggest economic decline in nearly two decades, but struggled to find candidates as many potential names withdrew before they could be considered or were rejected by the Free Democrats.

The Free Democrats, whose presiding council will also meet on Friday before another session with the Socialists, have said they could not support a Socialist party politician.

Most political analysts have said the two parties will try their best to avoid early elections as the deeply unpopular Socialist would face certain defeat while the Free Democrats would be unlikely to pass the 5 percent threshold to re-enter parliament. (Reporting by Balazs Koranyi; Editing by Dominic Evans)