Ukrainian coalition threatened by bickering

KIEV (Reuters) - Ukrainian President Viktor Yushchenko said on Wednesday the coalition government had collapsed and threatened to call a snap parliamentary election.

Yushchenko accused coalition partner Prime Minister Yulia Tymoshenko of joining forces with rival factions after months of bickering between them, including differences over Russia's intervention in Georgia.

He made his accusations after members of Tymoshenko's bloc and the Regions Party of former prime minister Viktor Yanukovich voted together late on Tuesday to reduce presidential powers.

"I will use my right to dismiss parliament and announce early elections," Yushchenko said in a televised statement.

Tymoshenko in turn accused Yushchenko of wrecking the coalition, said he was seeking popular support before a presidential election due in 16 months and urged his party to come back to the coalition.

"You have 10 days of no ultimatums, no demands, no provocations, to come back to the democratic coalition," she said in a televised statement.

Under the constitution, the coalition has 10 days to work out its differences. After that, if parliament does not create a new coalition within 30 days, Yushchenko can call an election.

That would be the third parliamentary election in as many years since the 2004 Orange Revolution which swept Yushchenko to power with promises of greater integration with the West, including joining NATO and the European Union.

Yushchenko's office had accused Tymoshenko of betraying Ukraine during the Georgia conflict by not backing Tbilisi, as Yushchenko did, when Russian troops marched into South Ossetia last month.

They said she had made a deal with Moscow -- her silence for Russian support if she runs in the presidential race. Tymoshenko has said that she supports Georgia's territorial integrity.

Politicians warned that Ukraine could be Russia's next target. Analysts say that although a Russian invasion is extremely unlikely, a divided political elite in Ukraine would spell trouble for relations with Moscow.

PRESIDENTIAL ASPIRATIONS

The president accused Tymoshenko of joining forces with Yanukovich, who lost to Yushchenko in the 2004 presidential election re-run, after an initial vote was deemed fraudulent.

All three politicians are expected to run in a new presidential election. Analysts see the constant rowing between Yushchenko and Tymoshenko, which has brought reforms to a standstill, as maneuvering before the poll.

"It is obvious that he (Yushchenko) is following his own aims, that he is defending his future prospects, that he still hopes for success at the presidential elections," analyst Olexander Dergachyov said.

Polls show that Tymoshenko would win a presidential election, with Yushchenko coming last. In a parliamentary election, she would increase her seats, while Yushchenko's Our Ukraine party would lose some.

Mustering a majority of 331 seats out of 450, Tymoshenko's bloc and the Regions party passed a law which enables the government to ignore the president's decrees.

After the Orange Revolution the division of power was never fully settled and the constitution is not always clear on the division of authority or procedure of governing.

"Soon, I will present basic, well thought out and necessary changes to the constitution," Tymoshenko said.

Yushchenko's decrees in recent months have halted the privatization of several large state firms. The government was relying on receiving the revenues from sell-offs for its budget.

The fighting between the two also prevented the government from adopting a unified approach to inflation, which soared to over 30 percent in May and is still high at 26 percent, and divided the central bank as it revalued the currency.

Financial markets reacted sharply to the crisis. Kiev's PFTS stock market index fell 3.8 percent, and there was a big rise in the cost of insuring against Ukraine defaulting on its debt. Credit rating agency Fitch said foreign investment could be reduced.

But analysts have said long-term investors in Ukraine are used to its turbulent politics.

U.S. Vice-President Dick Cheney is due to arrive in Ukraine on Thursday to show support for Kiev after the Russian intervention in Georgia.

(Additional reporting by Pavel Polityuk; Writing by Sabina Zawadzki; Editing by Robert Hart)