Comfortable Socialist win suits Greek markets

ATHENS (Reuters) - The Socialists' victory over the conservatives in Sunday's Greek election should please markets as the change of guard brings a strong government, which will be needed to steer the country out of an economic crisis.

The Interior Ministry projected, based on partial results, that PASOK had won nearly 44 percent of the vote, giving it 160 out of 300 seats in parliament, and New Democracy was trailing with about 34 percent and 92 seats.

If the final result matches the projection as expected, PASOK will have won a comfortable majority in parliament, a market-friendly outcome that confirmed pre-election polls.

"A parliamentary majority means political stability ahead," said Millennium Bank-Greece Treasurer Panagiotis Dimitropoulos.

"With a majority in parliament an uncertainty factor is out of the way. I expect the outcome to be on the positive side as regards bond spreads. How well received it will be remains to be seen," he said.

A barometer of investor confidence in view of rising public debt and deficits, the yield spread of Greek government paper over benchmark German bunds stood at 135 basis points on Friday.

The spread blew out to 300 basis points during heightened risk aversion earlier in 2009.

Once more under the European Union's excessive deficit procedure since April this year, Greece is wrestling with widening fiscal shortfalls, rising public debt and unemployment with its economy on the verge of recession.

The conservative government was forced to implement new taxes and freeze public sector pay to halt the fiscal deterioration, in part due to the global economic downturn that hit Greece later than many other developed countries.

Despite its efforts, this year's budget gap is likely to overshoot not only the Greek stability program's 3.7 percent of GDP target but also the EU Commission's 5.1 percent forecast. The finance minister admitted it already hit 6 percent of GDP.

"For the markets, what will be more significant is the 2010 budget, whether its assumptions will be realistic, credible and feasible," said Spyros Pantelias, head of asset management at Bank of Cyprus.

"In the first few days I do not expect any big move in bond spreads, the result was the most likely scenario," he said.

For Greece's stock market, which has participated in the global rebound with gains of 35 percent so far this year, what will matter more will be expected measures including taxes on capital gains and dividends, he said.

Analysts expect the honeymoon period for the new government to be short-lived as the tough 2010 budget looms in November. The new cabinet will face challenging tasks -- piloting the economy toward growth while credibly delivering on fiscal sustainability.

(Editing by Sonya Hepinstall)