UPDATE 2-Ex-TV anchor Yair Lapid named Israeli finance minister
* Upstart centrist party joins Netanyahu coalition
* Party leader, ex-TV presenter, gets finance portfolio
* Faces budget deficit reduction challenge
By Tova Cohen and Steven Scheer
TEL AVIV, March 15 (Reuters) - A former TV anchor whose upstart political party was the biggest surprise in Israel's January election was named finance minister on Friday as a coalition deal was signed, his spokesman said.
Yair Lapid's centrist Yesh Atid party, which champions bread-and-butter issues of the Israeli middle-class, won 19 of parliament's 120 seats, second after Prime Minister Benjamin Netanyahu's right-wing Likud-Beiteinu alliance's 31 seats.
After nearly six weeks of negotiations, Yesh Atid agreed on Thursday to join a Netanyahu-led government. The deal, and a separate coalition pact with the far-right Bayit Yehudi (Jewish Home) party, were signed on Friday.
Lapid, who will replace Yuval Steinitz once a new government is sworn in, ran largely on a platform of easing financial pressures on the middle class through the need to share the burden - a rejection of privileges for ultra-Orthodox Jews.
The new minister faces a major fiscal challenge in trying to reduce a budget deficit that reached 4.2 percent of gross domestic product in 2012, double an initial target of 2 percent.
To meet a deficit target of 3 percent of GDP in 2013, the government will need to cut 14 billion shekels ($3.8 billion) in state spending and raise taxes by about 6 billion shekels, the central bank has said.
Zach Herzog, head of international sales at brokerage Psagot Securities, said Lapid will have to prove to markets that he can manage fiscal policy.
"From what little can be gleaned about his economic views he will be fairly in line with centrist-right economic policy," Herzog said. "He will make cuts in social services, child benefits. That's part of the platform he ran on."
Despite a minimal knowledge of economics, Lapid will get the benefit of the doubt from investors, at least at the outset.
"According to his agenda, he is on track to satisfy the markets," said Eyal Klein, chief strategist at the IBI Investment House and former manager of external debt at the Finance Ministry.
Lapid's success largely depends on how much backing he receives from Netanyahu, himself a former finance minister who favours the free market.
"We don't know what the working relationship will be between the two but we know what needs to be done, which is a substantial cutting of expenditures," Bank Leumi chief economist Gil Bufman said.
After a long career in journalism, Lapid founded Yesh Atid - Hebrew for 'there is a future' - in early 2012, capitalising on growing public discontent at living costs and housing prices.
Hundreds of thousands of Israelis rallied in the summer of 2011, protests that were sparked by a jump in the price of cottage cheese, an Israeli staple that became symbolic of the wider price rises.
Ofra Strauss, chairwoman of foodmaker Strauss Group - a main target of those protests - said Lapid faced a tough challenge but could expect the support of business.
"Whoever will sit in this seat in the next four years will have definitely a lot of turbulence," Strauss told Reuters.
"We heard in the last few years what everyone wants to happen in this country ... all of us voted for change, for new things, new direction, so I am sure the business sector will be there for him."
In addition to the budget, a key issue for markets is whether the government will allow Canadian fertiliser producer Potash Corp to buy control of Israel Chemicals Ltd , the world's sixth-largest potash maker, according to broker Herzog.
Potash Corp seeks to raise its stake from 14 percent but Israel's government has a golden share in ICL, giving it a veto right on any takeover. Although Lapid will face populist pressure against a sale of ICL, such a deal could be a huge tax windfall.