* Conservative Anastasiades short of outright majority
* Run-off against Communist-backed Malas on Feb. 24
* Kingmaker Lillikas suspicious of terms for any bailout
* Financial crash could reignite euro zone crisis
By Michele Kambas and Deepa Babington
NICOSIA, Feb 18 Cypriot political leaders begin
a week of bargaining on Monday after the first round of a
presidential election failed to produce an outright winner to
steer the island nation through its worst financial crisis in
Conservative leader Nicos Anastasiades, who backs a swift
deal with EU and IMF lenders on a bailout to avert a Cypriot
bankruptcy, won Sunday's vote but fell short of the absolute
majority needed to avoid a run-off on Feb 24. He faces
Communist-backed Stavros Malas in that round.
Any financial crash in Cyprus could reignite the euro zone
debt crisis just as confidence slowly returns to the bloc.
Complicating matters for investors, both leading candidates
must court voters who backed runner-up George Lillikas, an
independent deeply suspicious of terms for any bailout - which
he says may keep Cyprus in perpetual bondage to foreign lenders.
"Our country is at a crucial juncture," Lillikas told his
supporters, refusing to disclose which candidate he will back.
"We will support policies which defend the sovereignty of
the Republic of Cyprus, and every policy which defends our
national interests and is resistant to the will of foreigners."
The anti-austerity campaigner turned in a surprisingly
strong performance in Sunday's election, taking 25 percent of
the vote and trailing Malas, who campaigned on a pro-bailout but
anti-austerity platform, by just 2 points.
A lawyer who has led the Democratic Rally party since 1997,
Anastasiades secured 45.4 percent and remains the favourite to
clinch a victory next Sunday.
"I will reach out to political leaders, seeking to broaden
the public mandate we have even more," Anastasiades told
cheering supporters after the first round.
"(It is a mandate) to get rid of a leadership which led us
to food rationing, unemployment and misery."
If successful, Anastasiades faces a long list of challenges
in convincing European Union and International Monetary Fund
lenders to sign off on a rescue before the tiny state faces a
1.4 billion euro debt repayment in June.
He will have to assuage fears Cyprus will never be able to
pay back its debt even if given a bailout loan equivalent to the
size of its economy, and quell concerns in northern Europe that
the island is a hub for laundering money from Russia.
Talks on a rescue, which have dragged on for eight months,
have also proven tricky because almost any way of solving the
crisis - from restructuring debt to slapping losses on banks -
could set a precedent for other troubled states and damage
sentiment just as fears of a Greek euro zone exit fade.
European Central Bank board member Joerg Asmussen said on
Sunday he hoped a financial rescue agreement that would include
privatisations could be reached with a new Cyprus government by
the end of March.
Cyprus sought financial help last year after its banks
suffered huge losses from Greece's sovereign debt restructuring.
The island, which has been shut out of international financial
markets since May 2011, needs about 17 billion euros in aid -
roughly the same as its gross domestic product.
Reuniting Cyprus after its division nearly 40 years ago into
a breakaway Turkish Cypriot state in the north and the
internationally recognised south run by Greek Cypriots has
lagged far behind economic troubles as an election issue.
"This result means that Cypriots have not quite decided if
Anastasiades is the man to get them out of the crisis. It will
be a tough second round," said Fiona Mullen, an economist at the
Sapienta consulting firm.
"It makes it a bit tougher for Anastasiades to persuade EU
leaders that Cyprus is on the right path, that they will do what
it takes to get a bailout."
With unemployment hitting a record 15 percent and Cypriots
still coming to grips with pay cuts, tax hikes and benefit cuts
imposed last year in preparation for a bailout, many feel things
can only get better from here.
"The situation undoubtedly can't get worse and I expect
concrete action (from Anastasiades) to revitalise the economy,
to bring recovery and give hope to the people," said 53-year-old
doctor Pavlos Drakos.