By Nigel Davies
SEVILLE, Spain (Reuters) - Spain's centre-right People's Party failed to secure an outright majority in a regional election in Andalucia, missing out on the chance of a psychological boost for Prime Minister Mariano Rajoy's looming austerity budget.
Surveys had suggested the PP would win its first ever overall majority in Spain's most populous autonomous region, a result that would have reinforced his mandate to deepen cutbacks in public spending as he tries to drag Spain out of the euro zone debt crisis.
A solid win in Andalucia, known for its olive oil and beaches, would have put the PP in control of 12 of 17 autonomous regions and strengthened Rajoy's hand before a general strike on Thursday and his presentation of a tough 2012 budget on Friday.
"A day after the polls, the PP is still the dominant power in Spain ... but electorally it is starting to suffer the effects of the (economic) situation it has to deal with," the left-leaning newspaper El Pais said in an editorial.
The PP won 50 of the 109 seats in Andalucia, still the most it has ever won. But the combined totals of the Socialists, with 47, and the United Left on 12 open the possibility of a leftist ruling coalition.
Opinion polls had forecast the PP would take between 54 and 59 seats as Andalucians tired of three decades of Socialist rule, high unemployment and corruption scandals.
In April, Rajoy is expected to enact reforms allowing the regions to cut health care and education spending. He commands an absolute majority in the national parliament and will be able to forge ahead with plans for spending cuts to hit a tough public deficit target of 5.3 percent of gross domestic product.
The extent of fear over the cuts will be visible on Thursday when Spain sees its first general strike since November 2010.
"The vote should not be over interpreted in the coming days. People are not suddenly shifting and voting against austerity. The PP still won in Andalucia. The mood has not changed for the Socialists and a general strike is not going to change the government's deficit commitments," said Antonio Barroso, political analyst with Eurasia Group.
The Socialists suffered all over Spain in last year's national and local elections as voters punished them for their handling of the economy. Spain is heading into its second recession in three years.
"It's a bittersweet victory for the PP. It would have given them control of 12 of 17 regions, and of all the main ones except Catalonia, which is committed to austerity anyway," Barroso said.
FATIGUE WITH SOCIALIST RULE
The United Left - which doubled its presence in the assembly - hinted that it would consider a coalition with the Socialists, but analysts said tough negotiations lay ahead.
"Today we've seen that the majority of voters in Andalucia have not voted for the right. They want change that defends the social model and equality of opportunity," United Left leader Cayo Lara said on television.
"The people of Andalucia want change, but they want change through the left."
A dozen Socialist leaders are to go on trial on accusations that they diverted benefits meant for struggling companies to family and friends.
"United Left knows it can either go into an alliance with a government that has been marked by corruption scandals, or with the PP, which won more popular backing," said Jose Pablo Ferrandiz, a director at Metroscopia polling agency.
Metroscopia had forecast outright victory for the PP and had not expected so many votes to go to the United Left.
"United Left has the key to the next government, and it will sell it dearly," Ferrandiz said.
The smaller northern region of Asturias also held an election on Sunday. As expected, no party got a clear majority, and it was still not clear whether the Socialists or the PP would be able to form an alliance with another party to govern.
Spain's regions account for about half of public expenditure and overseeing their spending after years of profligacy will be key to the central government meeting its deficit targets.
Andalucia is one of the most indebted regions in Spain relative to its output and has the highest jobless rate, at over 31 percent.
It is home to almost a fifth of Spaniards and its economy relies on more than 20 million visitors to its cities and beaches each year, as well as agriculture.
At least half of Spaniards support some spending cuts to social services as the government tries to avoid needing a bailout like neighbor Portugal.
Spanish stocks were the main fallers in Europe on Monday morning.
By 0844 GMT, the FTSEurofirst 300 index was almost unchanged while the Spanish IBEX index was down 1.7 percent.
(Additional reporting by Tracy Rucinski; Editing by Fiona Ortiz and Janet Lawrence)