FACTBOX-Five political risks to watch in Australia

SINGAPORE Oct 7 (Reuters) - Australia's central bank raised interest rates on Oct. 6 and signalled more increases to come, sparking opposition attacks on the economic management of Prime Minister Kevin Rudd, who is well ahead in opinion polls.

The rate hike has increased speculation of an early 2010 poll, with elections due by late 2010.

Following is a summary of key Australian risks to watch:

* RELATIONS WITH CHINA

Relations between China and Australia have been soured by political opposition to China's efforts to buy key stakes in Australian commodities and resources firms. Australia will have to find the appropriate balance between being open to investment and trade -- demand from China was the key factor that rescued the country from global recession -- while ensuring that deals are not contrary to the national interest. The legal case in China against Rio Tinto executives has increased tensions, and shown how business issues play a key part in bilateral relations.

Key issues to watch:

-- China's next move in the Rio Tinto case. A decision is expected soon on whether to put the four arrested executives, charged with stealing commercial secrets, on trial. By dropping the most serious charge, of stealing state secrets, China may have signalled it wants to defuse the politically charged case.

-- Progress on a free trade agreement with China.

-- Upcoming decisions on whether to allow Chinese investment in sensitive industries, and China's response.

* CLIMATE CHANGE AND ENVIRONMENT

Australia is the biggest per-capita emitter in the developed world, and climate change is among the most contentious political issues. In August, a hostile Senate voted down an emissions trading bill championed by Rudd. The government wants a second vote on the bill in November, the last parliamentary session of 2009, and ahead of global climate talks in Copenhagen in December. If the Senate votes it down a second time, Rudd can dissolve both houses and call early elections -- on current poll indications, this would return him with a strengthened majority. The opposition is now split on whether to seek changes to the bill or try and delay a vote, fearing a snap election.

Key issues to watch:

-- Parliamentary vote on emissions trading bill. Opposition leader Malcolm Turnbull wants to negotiate changes to the bill to avert facing a snap election, but senior members of his party are refusing to do a deal and may join forces with independent Senators and filibuster, delaying a vote until February 2010.

* RUDD'S POPULARITY

As elections get closer, markets will be evaluating the chances of a change of government, and whether this would result in major changes to economic policy, climate change policy, defence policy and relations with China. For the moment, the possibility of a change in government appears low. Rudd has a commanding majority, and current poll ratings suggest elections would return him with an even stronger mandate. Australia's performance during the global financial crisis has been better than many of its peers and Australia has dodged recession. However, unemployment is still forecast to rise and interest rates are rising again as the economy strengthens, giving some ammunition to the opposition.

Key issues to watch:

-- Monetary policy. The Reserve Bank of Australia tightened rates on Oct. 6 and signalled more rises to come. Interest rates and the possibility of tax rises will be key election issues.

-- Opinion polls, for any sign's Rudd's lead is slipping.

* GOVERNMENT INTERVENTION IN THE ECONOMY

The economy weathered the crisis well, helped by government stimulus spending, but many Australians worry about the rising level of private and public debt and budget deficits. The opposition has made it a political issue, attacking the spending as excessive. Australian elections are traditionally fought over economic management.

Key issues to watch:

-- Economic data. Recent data suggests the budget deficit is likely to be much smaller than had been feared. The government announces an update of its budget position in November.

* SECURITY

Rudd has been a far less vocal backer of the global war on terror than his predecessor, and has pulled Australian troops out of Iraq. Nevertheless, Australia is seen as a key U.S. ally and faces the possibility of attacks on its soil by militant groups. The foiling of a plot by local militants to shoot Australian soldiers on an army base was the latest evidence of the low-level, but ongoing security threat that Australia faces.

Key issues to watch:

-- Any change to Australia's terrorism alert level, which has been at medium since 2003. (Compiled by Andrew Marshall; Editing by Nick Macfie)