* New feud between Ponta and Basescu may spook investors
* Stability needed for reforms in EU's second poorest state
By Luiza Ilie and Radu Marinas
BUCHAREST, March 3 (Reuters) - Prime Minister Victor Ponta urged Romania's president on Monday not to block his attempts to form a new governing coalition as a new standoff loomed between the two bitter rivals, threatening to unnerve investors.
Ponta hopes to establish a government with the help of new allies this week after the departure of his main coalition partner last Tuesday following a series of spats, which raised concern for Romania's ability to stick to commitments made in exchange for an aid deal with the International Monetary Fund.
The split left Ponta with just over half the seats in the lower house, not enough to pass laws reliably in a parliament where party indiscipline and lawmaker absenteeism are common.
But an ethnic Hungarian party joined Ponta's Social Democrat-led alliance on Monday, partially restoring his once-two-thirds majority in parliament and giving him enough seats to win a confidence vote due on Tuesday.
However, President Traian Basescu questioned Ponta's legal right to form a new government because of the loss of one of its founding parties, and has threatened to block its creation.
Ponta criticised Basescu's new challenge as irresponsible at a time when domestic political instability, coupled with emerging market jitters over the Federal Reserve's tapering and turmoil in the Ukraine, have put pressure on Romanian assets.
"On Monday I will have serious discussions with legal experts," Basescu told local television station PRO TV on Sunday. "I will not approve a government against my conscience and with concerns over the constitution. I would turn to the Constitutional Court."
LIBERALS OUT, HUNGARIANS IN
The ethnic Hungarian UDMR party announced on Monday it would join the government - taking over the ministerial portfolios of environment and culture - to replace Ponta's former Liberal allies in the coalition.
Ponta hopes to boost his majority to around 60 percent with the Hungarians and other minorities' support. That would be enough to help him pass legislation but it is still lower than the powerful two-thirds majority he previously held.
"We noticed that Romania now needs government stability taking into account the (domestic) context and situation around our country. Our contribution to stability is of paramount importance," UDMR leader Kelemen Hunor said on Monday.
The Hungarians' support gives Ponta a new mandate to push a reform agenda to further cut the fiscal deficit, raise some new taxes and clean up loss-making state companies - difficult policies to push in an election year. Romania will vote in European elections in May and a presidential vote in November.
But Basescu's threat could prolong political instability in the European Union's second poorest state. His legal challenge would be partially based on the premise that a new government may alter its legislative agenda - a charge Ponta denies.
Attempts by Ponta to remove Basescu in 2012 sparked a constitutional crisis.
Analysts said it was too early to say whether Basescu's pending challenge would succeed.
"Previous governments have made serious changes and went unchallenged, so based on that such a request cannot be justified," said Sergiu Miscoiu of the CESPRIl think-tank. "Knowing our Constitutional Court, it could rule either way."