* Mursi says vote could begin in October
* Delay gives breathing room for IMF deal
* Court overturns Mursi's decision on prosecutor
By Tom Perry and Yasmine Saleh
CAIRO, March 27 (Reuters) - Egyptian President Mohamed Mursi said on Wednesday parliamentary elections could be delayed until October, a postponement which could give his cash-strapped administration breathing space to negotiate an IMF deal.
Mursi's original plan was for a four-stage election that would start in late April and put a parliament in place by July.
But the schedule fell apart this month when a court cancelled the presidential decree setting the dates. "Perhaps the elections will be held in the coming October," state news agency MENA quoted Mursi as saying.
The postponement removes one source of friction between Mursi and the secular-minded opposition that had planned to boycott the vote on the grounds that the election law had been drawn up to suit Mursi's Muslim Brotherhood and other Islamists.
But many tensions remain in a political landscape where divisions have deepened since Mursi was elected in June.
The acrimony will complicate efforts to build the consensus that the International Monetary Fund wants to underpin a loan deal likely to require cuts in unaffordable state subsidies.
This week Mursi's opponents accused him of instigating a crackdown on dissent when the prosecutor-general ordered the arrest of five bloggers alleged to have incited violence against the Brotherhood.
Mursi has in turn hardened his tone in response to recent violence triggered by protests against him and the Brotherhood. After promising on Sunday to take unspecified steps to protect the nation, Mursi vowed on Tuesday to "break the neck" of anyone who threw a petrol bomb.
The unrest is frustrating efforts to revive the economy.
Dwindling wheat stocks and shortages of imported fuel have increased the urgency of securing the IMF loan to plug the budget deficit and support foreign currency reserves that have dropped below the level needed for three months of imports.
The government has said it expects an IMF technical mission in Cairo soon to complete negotiations on the agreement.
The IMF, however, has not given a date. The planning minister said last week he expected a deal and payment of the first tranche of the loan by the end of June.
Masood Ahmed, director of the IMF's Middle East and Central Asia department, held talks in Cairo earlier this month, saying loan discussions would continue in the coming weeks.
An IMF deal would unlock billions of dollars in further support for Egypt. But political consensus is seen as vital.
With elections postponed, Mursi may have to give ground to opposition demands including a change in government.
"This could increase the possibility of a reshuffle. It would force some concessions in line with opposition demands," said Mona Mansour, chief regional economist at CI Capital.
Ahmed Omran, Mursi's adviser for development issues, told a Kuwaiti newspaper this week that one way forward would be for Mursi to head the government himself.
But the arrest warrants for the bloggers appeared to have made the opposition less willing to talk of give-and-take.
"If he is going to arrest us, arrest the activists, threaten the opposition, I don't think this is showing any sign of compromise," said Khaled Dawoud, spokesman for the National Salvation Front, an alliance of non-Islamist parties that have come together to oppose Mursi.
Hassan Nafaa, a professor of political science and a critic of Mursi, also questioned the Islamist leader's readiness for concessions. "If the president had wanted a dialogue, he would have postponed the elections a while ago," he said.
One opposition demand is for the removal of the prosecutor- general appointed by Mursi in November.
In a blow to the president, an appeals court on Wednesday ordered the reinstatement of the former prosecutor-general, a Hosni Mubarak-era appointee whom Mursi had sacked. It was not immediately clear whether Mursi would appeal.
Mursi had billed the parliamentary election as completing the transition from Mubarak's autocracy. A court dissolved the previous lower house, which was led by the Brotherhood, in June.
Mursi now expects the new lower house to convene by the end of the year, according to MENA, the state news agency, which said it would take two and a half months to complete a new election law and another two months to prepare for the vote.
Yasser Mehrez, a Brotherhood spokesman, said Mursi's critics should now "calm down" since the delay met one of their demands. "I really hope they react to it positively," he said.