* Rightist ex-ally of Slobodan Milosevic becomes president
* Liberal ex-president Tadic trying to form government
* Uncertainty depressing dinar; debt must come down
By Matt Robinson
BELGRADE, May 31 (Reuters) - Rightist Tomislav Nikolic took office as president of Serbia on Thursday as liberal rival Boris Tadic manoeuvred to retain power as prime minister in a new government still dedicated to achieving entry into the European Union.
A former ally of late nationalist strongman Slobodan Milosevic, Nikolic began his five-year term by reading the oath of office in parliament, convened for the first time since parliamentary and presidential elections in May.
He reiterated his support for the former Yugoslav republic’s bid to join the European Union and his opposition to the independence of its former province of Kosovo - a twin-track policy observers say will prove impossible.
“I want a house with two doors, to the East and to the West,” Nikolic, 60, a former cemetery manager nicknamed “Gravedigger”, said in a speech to lawmakers and dignitaries.
“I want a Serbia that will be an equal member of the European Union, and which will never give up its sovereignty, territorial integrity or Kosovo.”
Nikolic’s shock win over Tadic, a two-term president, 10 days ago sent a chill through a region that still recalls his last spell in government - as deputy prime minister in a coalition with Milosevic when NATO bombed Serbia to drive its forces out of Kosovo during a 1998-99 war.
But the president in contemporary Serbia has limited powers, and Tadic has emerged as frontrunner for the more powerful post of prime minister likely in charge of a renewed coalition that will push to start EU accession talks next year.
Nikolic has tried to reinvent himself as a pro-European conservative since splitting in 2008 from his firebrand ultranationalist mentor Vojislav Seselj, who is standing trial for war crimes in The Hague.
The EU has made clear Nikolic is on probation, and has called for a new coalition government committed to the painful reforms asked of Serbia before the bloc opens accession talks.
Nikolic met Russian President Vladimir Putin in Moscow on Saturday, but his first official foreign trip as president will be to Brussels, the hub of the EU, on June 14.
The EU will tell him to improve ties with majority-Albanian Kosovo, where Belgrade still controls the Serb-populated north in a de facto ethnic partition four years after Kosovo declared independence with Western backing.
As president, Nikolic grants the mandate to form a government. Having narrowly won the parliamentary election, his Serbian Progressive Party (SNS) gets the first shot, but looks to be short of allies for a majority in the 250-seat parliament.
Tadic, meanwhile, has already launched talks with his former partners in the last government, a bloc led by the Socialist Party of Milosevic’s wartime spokesman Ivica Dacic.
They will need the support of either the pro-business United Regions party of former central bank governor Mladjan Dinkic or the staunchly pro-European Liberal Democratic Party led by former student protest leader Cedomir Jovanovic.
Tadic has ruled out a “grand coalition” with Nikolic’s SNS as one leap of faith too far. He says he doubts Nikolic’s change of direction on the EU, while Tadic’s Democrats would remain the dominant partner in a pact with the smaller Socialists.
The pressure is on to establish a government, since political uncertainty is driving the Serbian dinar to record lows against the euro and there are warnings of an imminent debt crisis if Serbia does not rein in spending and secure new backing from the International Monetary Fund.
Unemployment in the Balkan country of 7.3 million people has risen to 24 percent. The economy is estimated to have contracted 1.3 percent in the first quarter of 2012.