MADRID (Reuters) - Spain's ruling Socialist Party needs to resolve its leadership succession soon to dispel any market doubts over the government's commitment to reforms to meet European Union deficit targets, analysts say.
In the transition period, it will be vital that Spain continues to differentiate itself from other periphery economies, particularly neighboring Portugal, to avoid renewed speculative attacks on its sovereign debt.
Spanish Prime Minister Jose Luis Rodriguez Zapatero, his popularity hammered by the euro zone's highest jobless rate, said on Saturday he would not seek a third term in 2012 elections his party is expected to lose.
"There needs to be no doubts over how the economy will be managed in the coming months," said Emilio Ontiveros, chairman of International Financial Analysts.
Zapatero's move triggers primaries for a new party leader after May 22 local polls, with popular Deputy Prime Minister Alfredo Perez Rubalcaba shown as still the preferred candidate, according to the latest Metroscopia poll published by El Pais newspaper on Sunday.
The euro zone's fourth largest economy came under attack in bond markets after a real estate bubble burst in 2008, causing a deep recession and 20 percent unemployment. Spain's recovery has lagged behind the rest of Europe.
But Zapatero said he would serve out the remainder of his term and focus on carrying out his programme of economic reforms, a decision which some analysts say could minimize the impact of the succession issue.
"I don't think Zapatero not standing a third term will prejudice Spain's position with Brussels. He has said he will carry on with economic reforms," said Carlos Berzosa, economics expert and rector at Madrid Complutense University.
(Reporting by Judy MacInnes; editing by David Cowell)