Madagascar leader returns to power-sharing talks

* Says mediators say he will retain presidency

* Former leader proposes dual presidency

(Recasts with Rajoelina's return to negotiations)

By Alain Iloniaina

ADDIS ABABA, Nov 6 (Reuters) - Madagascar's leader returned to power-sharing talks on Friday, hours after storming out, reviving hopes the Indian Ocean island's political rivals might broker a deal on forming a unity government.

Andry Rajoelina said international mediators had assured him an agreement which saw him retain the office of president, struck last month between the country's main political movements, would remain in place.

That is likely to irk former president Marc Ravalomanana, who stepped down under military pressure in March and rejects any deal which sees Rajoelina retain the top post. Instead, he proposes a dual presidency.

"In the superior interest of the nation I have accepted to return to the negotiating table. I don't want the population to suffer," Rajoelina told reporters in Ethiopia's capital, Addis Ababa.

"I spoke for a long time with the mediators and I have had the guarantee that the Maputo accord and last month's Carlton agreement will be applied," he added, referring to the initial power-sharing deal stuck in Mozambique's capital.

Under the terms of the accord, Rajoelina, Ravalomanana and former presidents Didier Ratsiraka and Albert Zafy were to jointly pick a consensus government tasked with steering the world's fourth largest island to fresh elections. But they have been deadlocked ever since.

The talks would be extended until Nov. 7, said lead mediator, former Mozambican president Joaquim Chissano.

Ravalomanana, a self-made millionaire, who rejects critics' charges of abusing political office to promote his business interests, entered this week's negotiations refusing to accept Rajoelina as president of an interim government. But he later proposed he pick an ally to share the president's office.

African nations and foreign powers branded the power-grab unconstitutional but backed the Oct. 6 agreement confirming Rajoelina as president and naming a relatively unknown social anthropology professor as prime minister.

Friday marks the end of a four-month period during which the European Union assessed progress towards the restoration of constitutional order and determined whether to unblock aid.

"Without donors, the meagre receipts levied from the companies which survive the crisis will never fill the empty state coffers," wrote local commentator Zo Rakotoseheno in the Midi Madagasikara newspaper.

Analysts say the crisis has sent economic growth spiralling into negative territory and alarmed major foreign companies investing in Madagascar's natural resources. (Writing by Richard Lough; Editing by Janet Lawrence)