Britain's Brown rejigs cabinet to calm crisis

By Frank Prenesti and Luke Baker

LONDON (Reuters) - British Prime Minister Gordon Brown sought to fend off a challenge to his authority on Friday, reshuffling his cabinet to secure the loyalty of several ministers and averting a government collapse.

In his second reshuffle in eight months, Brown changed the heads of 10 ministries, but retained his finance minister, foreign minister and the head of the business ministry, shoring up his power in the teeth of widespread party dissent.

"I will not waver, I will not walk away, I will get on with the job and I will finish the work," Brown told a news conference after giving details of the cabinet shake-up.

It included replacing six senior ministers who had resigned.

A day of high political drama took its toll on some markets, with the uncertainty sending sterling to a two-week low against the euro, before it recovered some ground. The possibility of Brown's government collapsing has caused rumor and uncertainty in currency markets all week.

But there was some relief for investors that finance minister Alistair Darling remained in his job. The bond market was largely unaffected and the main London stock index rose 1.2 percent.

Brown's government has been under severe pressure for the past month, after a parliamentary expenses scandal exposed wrongdoing among politicians from all parties and left voters angry with the incumbents.

DARLING STAYS ON

In the reshuffle, Brown had been expected to replace Darling, a close ally, but appeared to back away from that move after Darling made it known he did not want to go. In the end the shake-up produced less movement than expected as Brown kept key ministers in their posts to retain their loyalty.

While he has bought himself some breathing space, his authority has been wounded at a time when Britain is in its deepest recession in 60 years and unemployment is rising.

Brown's Labour Party is well behind the center-right Conservatives in opinion polls, and suffered a mauling in local elections on Thursday.

Brown's next test could come on Sunday when results of European Parliament elections are released. A very weak Labour performance could put renewed pressure on him to step down.

In an editorial in its Saturday edition, the Financial Times urged Brown to call a "back me or sack me" leadership election, as former Conservative Prime Minister John Major did in 1995.

"He should show he commands a clear majority in his party or step down and clear the way for a general election," it said.

Markets and voters are looking for strong government and clarity on when the next parliamentary election will be held. If Brown manages to survive the current crisis, it looks likely that he will wait for as long as possible before calling the next election. The deadline is June next year.