Sarkozy prepares cabinet reshuffle after vote rout

PARIS (Reuters) - French President Nicolas Sarkozy looked set to shake up his government on Monday after the center-right was savagely beaten in regional elections, with the minister in charge of sensitive pension reforms facing the chop.

Sarkozy held talks with Prime Minister Francois Fillon to discuss the reshuffle, which is certain to be more far-reaching than originally planned because of the scale of Sunday's defeat, which saw a resurgent left sweep 23 out of France's 26 regions.

The most exposed minister was Xavier Darcos, who heads the labor ministry and was set to lead negotiations with unions in the coming months on a reform of the costly pensions system.

Darcos stood in the regional vote, scoring just 28 percent against 56.3 percent for his Socialist opponent. The gap severely dented his credibility and political sources said his position in such an important ministry was untenable.

"It seems he is going to pay the price of a heavy defeat, even if we knew his region was unwinnable," said one source.

Budget Minister Eric Woerth, who has won plaudits for his calm manner and assured handling of complex dossiers, was frontrunner to replace him. He in turn looked set to be replaced by Francois Baroin, who is close to ex-President Jacques Chirac.

SOCIALISTS FACE HURDLES AFTER VICTORY

French markets weakened on Monday, with the Paris bluechip CAC-40 off 1.1 percent and the spread between French and German 10-year bonds widened to 33 basis points, its highest level in over a month.

Analysts said uncertainty over Greek finances was weighing more heavily than doubts over whether Sarkozy would push ahead with his reform programme or fears over the resurgence of the Socialist party, which is seen as less market friendly.

The left won some 54 percent of the vote on Sunday, its best election score since the birth of the fifth republic in 1958. The result gave the Socialists a strong launch pad for their assault on the presidency in 2012, but the party still suffers divisions and there is no clear candidate to challenge Sarkozy.

"This is a good success and we need to savor it ... but we won almost as many regions in the 2004 election and we didn't win the presidential election so we have to get organized," said former party chief and presidential hopeful, Francois Hollande.

A TNS-Sofres Logica poll released late Sunday said 71 percent of voters wanted the government to change its policies, while a CSA Opinion survey said 54 percent wanted Sarkozy, who has been criticized for a hyperactive approach, to adopt a more presidential style.

The feeble economy and rising unemployment weighed heavily on the center-right and protestations by ministers that France has fared better than many of its EU partners failed to sway an electorate eager to see the results of Sarkozy's reform drive.

The government has insisted that it will focus on growth and jobs in the coming months, while pushing ahead with unpopular pension reform and a contested shake up of the legal system.

The powerful CGT union has called for a day of protest over wages and pensions on Tuesday, hoping that the election loss will persuade the government not to pursue a raise in the retirement age beyond 60 years.

Sarkozy also faces pressure from his own camp to halt his policy of offering plum jobs to leftist candidates, which he says bridges political divides but has infuriated his allies.

This could spell trouble for ministers from the center-left drafted into the cabinet, such as Towns Minister Fadela Amara and Martin Hirsch, secretary of state for youth issues.

(Editing by Noah Barkin)