* Stadium packed for Andry Rajoelina's installation
* Western envoys stay away from ceremony in protest
* Supporters of former president hold counter-rally
(Recasts with ceremony, quotes, details)
By Richard Lough
ANTANANARIVO, March 21 Jubilant supporters packed a stadium for the installation of Madagascar's army-backed new leader, Andry Rajoelina, on Saturday, but several foreign envoys stayed away in a show of censure.
Music blasted out and army marksmen stood on roofs as the ceremony began in the 40,000-capacity sports arena of the sweltering capital, Antananarivo.
The 34-year-old opposition leader took over this week after leading months of street protests against President Marc Ravalomanana. The unrest killed 135 people, scared away tourists and unsettled investors in the Indian Ocean island's fast-developing mining and oil sectors.
Ravalomanana, 59, handed over to the military, who in turn conferred power on Rajoelina to be president.
In the strongest expression of widespread international disapproval, the African Union (AU) suspended Madagascar.
Major Western powers including the United States and the European Union have termed Rajoelina's rise a coup d'etat and called for early elections. Several nations have suspended aid.
Africa's youngest and newest president is carefully calling himself "president of the transitional authority" because of the questions over the legality of his rise to power.
Rajoelina is six years too young to be president, according to Madagascar's constitution, and is taking the presidency without any form of popular vote -- but the Constitutional Court has endorsed him as national leader.
He has promised elections within two years, and the new government has called Saturday's ceremony an "installation" rather than a "swearing-in".
"THE PARTY WON'T LAST"
Key Western envoys skipped Saturday's ceremony.
"The ambassadors of the U.S., France, Germany and the European Union have told us they won't be attending," said an aide to Ravalomanana, whose whereabouts remain unknown.
Washington has suspended all non-humanitarian aid to Madagascar, whose budget is 70 percent funded from abroad.
"As long as Madagascar remains in an unconstitutional situation and ... there prevails a climate of threats, intimidation and violence, the capacity for the international community to help the country will be reduced," U.S. envoy Niels Marquardt told the local Midi Madagascar newspaper.
European Union mission head Jean-Claude Boidin was not at Saturday's event either. "My invitation was cancelled," he told Reuters, adding the bloc would not take a quick decision on aid.
Stung by international disapproval, Rajoelina's camp says it is unfair to criticise a movement that fought for liberty and democracy on behalf of Madagascar's 20 million people.
As well as the crucial military backing, Rajoelina has widespread popular support.
Ravalomanana had faced increasing discontent over high poverty levels and his own enormous business empire.
About 2,000 of his supporters held a counter-rally at Antananarivo's Democracy Square on Saturday.
Around Antananarivo, a city of faded French colonial grandeur, the new leader's early promises to lower the price of essential food, scrap South Korean firm Daewoo's land-lease deal and sell the presidential jet have gone down well.
"Andry Rajoelina will bring democracy to Madagascar and he will help the poor," said retired teacher Tina Rassoamalala.
Some, however, were more cynical.
"The people will get their slice of the cake at first. But that slice will get smaller and smaller until it is just Rajoelina and his closest people benefiting," said restaurant worker Michel.
Analysts say Rajoelina must work fast to establish his legitimacy in the world's eyes. "He will have to come up with a broad-based government and a credible timetable with regard to elections that is acceptable to the Malagasy and international community," said Lydie Boka at the France-based risk consultancy StrategiCo.
"I fear ... the party won't last long."