Portugal's centre-right, Socialists fail to reach deal on government

LISBON (Reuters) - Portugal's caretaker prime minister failed to obtain backing from Socialist Party leader Antonio Costa on forming a new government on Tuesday, and have scheduled no further talks for now, according to the two leaders. Hopes for a breakthrough at the meeting were doused earlier in the day when Costa said his party was better placed to form a stable government than the centre-right coalition of Pedro Passos Coelho. "Our meeting ended with absolutely no conclusion," Passos Coelho told journalists after the second session between the two since an inconclusive election on Oct. 4. The next, formal steps to form a government now depend on President Anibal Cavaco Silva, who must decide which leader to name as prime minister after consultations with the heads of all political parties. Political uncertainty in Portugal has risen since the election, in which the centre-right coalition won the most votes but failed to win a majority in parliament, meaning it needs backing from the main opposition Socialists to pass laws. Stock markets fell in the past two days on the rising possibility of a leftist government after the austerity-minded centre-right coalition guided Portugal through a debt crisis and bailout, which Lisbon exited last year. Costa told Reuters earlier that the Socialists are now better placed to form a stable government than Passos Coelho's coalition as his party along with the Communists and Left Bloc would boast a majority in parliament. Passos Coelho and Costa differ in their interpretation of the election result. "It is natural that the legitimate aspiration of the one who wins is to be able to govern," said Passos Coelho. "I don't like to make ultimatums but time is of the essence. It is bad for the economy and investors to go through a period of uncertainty." Costa countered that Socialist voters did not vote for his party to "allow the coalition to continue in power". (Reporting by Axel Bugge; Editing by Shrikesh Laxmidas and Mark Heinrich)