UPDATE 3-Buoyant Congress eyes new allies for coalition
* Congress seeks stable coalition
* Focus on domestic investment and demand
* Free to pursue foreign policy objectives
NEW DELHI, May 17 (Reuters) - India's Congress party held talks on Sunday to identify allies for a stable new coalition government after a sweeping election victory at a time of sagging economic growth and regional instability.
Prime Minister Manmohan Singh's coalition defied predictions of a tight election and was only about 11 seats short of an outright majority from the 543 seats at stake, according to election commission data. (For more stories click [ID:nSP437509])
In a country where unwieldy coalitions were becoming the order of the day and hobbling policy, the electoral verdict this time means Congress will call the shots in coalition building rather than being dependent on the goodwill of regional parties.
The Congress' top leaders, including Singh, party chief Sonia Gandhi and Foreign Minister Pranab Mukherjee, met on Sunday and discussed potential allies.
They were expected to talk later on Sunday with the regional Samajwadi Party, which is based in the northern state of Uttar Pradesh, for a possible alliance, local TV channels said. The party had backed the Congress-led government over the last year.
"I can only tell you that there are a lot many smaller groups, many political parties or independents who are more than willing to support this government in national interest," Congress spokesman Rajiv Shukla said.
Pollsters had predicted controversial regional chieftains like Mayawati, a lower caste leader in northern India, could have held the balance of power after the election, stymieing economic policy and demanding ministerial portfolios.
A strong Congress-led coalition, free of pressures from its former communist partners, has boosted the prospect of reforms to encourage growth in Asia's third largest economy.
The new government will also have a strong mandate to deal with security issues in a region overshadowed by instability in Pakistan and Afghanistan.
Singh's coalition will be free to pursue closer ties with the United States, which the communists had opposed. They eventually walked out of the alliance over a civilian nuclear energy deal.
Indian markets were set to surge on Monday on expectations the clear election victory would lead to a strong and stable government that would accelerate the pace of economic reform.
The rupee INR=IN was expected to strengthen past 49 per dollar and bond yields were set to fall as the outcome should encourage foreign investors, analysts said. Continued...
