* Social Democrats’ leader expects difficult coalition talks
* Anti-graft ANO party takes second place, Communists third
* President Zeman will have say in forming government (Adds voter quote, more results)
By Jana Mlcochova and Robert Muller
PRAGUE, Oct 26 (Reuters) - Czech Social Democrats won most votes in a parliamentary election, partial results showed on Saturday, but their leader predicted tough talks on forming a new coalition government after new protest parties performed well.
The centre-left, pro-European Union Social Democrats led by ex-finance minister Bohuslav Sobotka won about 22 percent of the vote, based on the results of two thirds of Czech polling stations, well below the 30 percent they had been targeting.
A newly formed anti-graft protest movement ANO (Yes) led by a business tycoon took second spot with about 19 percent, ahead of the Communists on 16 percent, the partial results showed.
Four other parties - including the two centre-right parties whose scandal-tainted coalition collapsed in June - also seemed set to cross the 5 percent threshold to enter parliament.
“If the lower house of parliament is fragmented, we will face tough negotiations on forming government,” Sobotka told Czech television.
“The Social Democrats are prepared to take on this tough negotiation and we will try to form a reasonable, stable cabinet,” he said, adding he was ready to talk to all parties except the centre-right parties who led the last government.
But ANO’s billionaire leader Andrej Babis said he did not want his party joining any new coalition and at present could not envisage supporting a Social Democrat cabinet.
A Social Democrat government would be expected to slap new taxes on banks, utilities and high earners to pay for social programmes and help keep the budget deficit below the EU’s prescribed level of 3 percent of national output.
The Social Democrats, out of power since 2006, have previously said they want to form a minority government backed in parliament by the Communists, heirs to the totalitarian party that lost power in the 1989 “Velvet Revolution”.
It would be the first time the far-left party has had any share in power in the post-communist era.
Financial markets have mostly ignored the election thanks to the Czech Republic’s economic stability, underpinned by low public debt load and the lowest borrowing costs in emerging Europe, but they may be rattled by an uncertain outcome and the risk of drawn-out coalition talks.
The snap election was called after centre-right prime minister Petr Necas resigned in June in a scandal over alleged illegal surveillance and bribery.
His Civic Democrats won only about 7 percent and its former coalition partner, the conservative TOP09, about 11 percent, the partial results showed.
Anger over sleaze in the central European country of 10.5 million people gave a big boost to ANO and other protest parties in the final weeks of the election campaign, raising the prospect of prolonged haggling over a new coalition government.
ANO struck a chord among many voters who had grown weary of the old parties and seemed willing to overlook Babis’s pre-1989 membership of the Communist Party and links to the then-secret police.
“The current parties have messed it up. They all lie just to protect each other,” said voter Vilem Zajicek, 50, making clear he was backing one of the new groupings.
Sobotka’s hopes of becoming prime minister will hinge not only on the smaller parties entering parliament.
President Milos Zeman, himself a former Social Democrat prime minister, has made clear he expects to have a say in the post-election negotiations.
Zeman’s position will be all the stronger if the margin of the Social Democrats’ victory proves narrow. But he may be weakened by the failure of a leftist grouping of his allies to make it into parliament, as indicated by the partial results.
Zeman has long disliked Sobotka and may try to negotiate a coalition headed by another Social Democrat, analysts say. (Writing by Jan Lopatka; editing by Gareth Jones)