By Michele Kambas and Deepa Babington
NICOSIA (Reuters) - The Cypriot politician most in favour of an international bailout was in pole position to win next Sunday's run-off presidential vote as he and his communist-backed rival launched a week of bargaining to woo voters suspicious of a rescue package to stave off bankruptcy.
Conservative leader Nicos Anastasiades, who backs a swift deal with the European Union and International Monetary Fund on a bailout to fight the worst recession in four decades, faces off with Stavros Malas in a second-round vote on February 24 after neither won a clear victory in the first round last Sunday.
Markets are looking at the Mediterranean island with growing concern, fearing that its possible bankruptcy could reignite the euro zone debt crisis just as confidence slowly returns.
Most Cypriot newspapers speculated it was a foregone conclusion that Anastasiades, with a comfortable 18.5 percent margin over Malas, would win next Sunday's race. "The coronation was postponed," the Phileleftheros daily said in a headline.
Both leading candidates must court voters who backed runner-up George Lillikas, an independent deeply suspicious of terms for any bailout - which he says may keep Cyprus in perpetual bondage to foreign lenders.
"Our country is at a crucial juncture," Lillikas told his supporters, refusing to disclose which candidate he will back.
"We will support policies which defend the sovereignty of the Republic of Cyprus, and every policy which defends our national interests and is resistant to the will of foreigners."
The anti-austerity campaigner turned in a surprisingly strong performance in Sunday's election, taking 25 percent of the vote and trailing Malas, who campaigned on a pro-bailout but anti-austerity platform, by just 2 points.
A lawyer who has led the Democratic Rally party since 1997, Anastasiades secured 45.4 percent.
"I will reach out to political leaders, seeking to broaden the public mandate we have even more," Anastasiades told cheering supporters after the first round.
"(It is a mandate) to get rid of a leadership which led us to food rationing, unemployment and misery."
Sunday's winner will replace incumbent Communist President Demetris Christofias, a politician Anastasiades has charged with running the once-buoyant economy to the ground. Christofias is not seeking a second term.
The Politis daily speculated Anastasiades would work on luring support from the Socialist EDEK party, which was the primary backer of Lillikas's independent bid, and not Lillikas himself -- who was expected to cash in on his support and form a political party.
If successful, Anastasiades faces a long list of challenges in convincing European Union and International Monetary Fund lenders to sign off on a rescue before the tiny state faces a 1.4 billion euro debt repayment in June.
He will have to assuage fears Cyprus will never be able to pay back its debt even if given a bailout loan equivalent to the size of its economy, and quell concerns in northern Europe that the island is a hub for laundering money from Russia.
Talks on a rescue, which have dragged on for eight months, have also proven tricky because almost any way of solving the crisis - from restructuring debt to imposing losses on banks - could set a precedent for other troubled states and damage sentiment just as fears of a Greek euro zone exit fade.
Cyprus sought financial help last year after its banks suffered huge losses from Greece's sovereign debt restructuring. The island, which has been shut out of international financial markets since May 2011, needs about 17 billion euros in aid - roughly the same as its gross domestic product.
"This result means that Cypriots have not quite decided if Anastasiades is the man to get them out of the crisis. It will be a tough second round," said Fiona Mullen, an economist at the Sapienta consulting firm.
"It makes it a bit tougher for Anastasiades to persuade EU leaders that Cyprus is on the right path, that they will do what it takes to get a bailout."
(Writing by Deepa Babington; Editing by Giles Elgood)
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