By Richard Balmforth
KIEV (Reuters) - Ukrainian President Viktor Yanukovich shrugged off international criticism on Tuesday of an election which showed his party on a winning course, while opposition nationalists alleged vote-rigging and threatened possible street protests.
With the count from Sunday's vote nearing its end, Yanukovich's Party of the Regions and its communist allies were set to retain a comfortable majority in the 450-seat parliament to cement his grip before he seeks a second term in 2015.
The Organisation for Security and Cooperation in Europe, which sent 600 observers, called the election a "step backward" for Ukraine's democracy. It said state resources were misused to support the ruling party and media were biased, and noted that Yanukovich's main rival, ex-prime minister Yulia Tymoshenko, is in jail. It did not however criticize the voting itself.
"The observers gave a positive assessment to the process of voting," Yanukovich said in a statement that ignored the OSCE's critical comments about the election campaign.
U.S. Secretary of State Hillary Clinton backed the OSCE criticism and called on Yanukovich to free Tymoshenko.
"We share the view of OSCE monitors that Sunday election constituted a step backward for Ukrainian democracy," Clinton said, adding that "politically motivated convictions" of opposition leaders like Tymoshenko had kept them from standing.
Tymoshenko has announced a hunger strike in protest against what she called electoral fraud. Her party has yet to make a statement on results that show it placing second and losing about a third of its parliamentary representation.
The election will bring two other opposition parties into parliament for the first time, making the fractious body even rowdier - a liberal bloc led by world heavyweight boxing champion Vitaly Klitschko, and a far right group. Each looked set to secure about 35-40 seats, enough to make them viable fixtures on Ukraine's political scene.
The communists invoked Ukraine's pre-World War Two past to condemn the arrival of the far-right Svoboda (Freedom) party, whose showing was surprisingly strong.
Since coming to power in February 2010, Yanukovich, whose power base lies in the Russian-speaking areas of the east and south, has pressed ahead with policies which opponents say favor the big business industrialists who back him.
The former Soviet republic of 46 million has become increasingly isolated because of the jailing of Tymoshenko, with the European Union refusing to settle a major free trade pact.
COST OF PROMISES
Corruption is a big concern in Ukraine and many ordinary Ukrainians suffer economic hardship. Voters were frustrated with the performance of the established political parties.
Even in areas that traditionally support the Party of the Regions, some voters said they were disillusioned by government policies on tax and pensions. But public sector wage increases, welfare handouts and promises to boost the status of the Russian language appeared to have won over many waverers.
Those election-driven economic policies have had a cost. The state budget deficit reached almost $1 billion in September and the hryvnia slipped to an eight-week low on Tuesday as people expect depreciation after the vote.
Half of seats are allocated to candidates who win the most votes in individual constituencies, and half to parties by proportional representation. With 87 percent of votes counted, figures from the Central Electoral Commission showed the Regions had won 117 constituency seats and 75 from party lists.
Though this was short of the outright 226-seat majority, the Regions should easily make up the shortfall by cutting deals with their traditional communist allies, who placed third in the party list tally, and independents.
Tymoshenko, 51, is serving a seven-year jail sentence for abuse of office over a gas deal she brokered with Russia in 2009 when she was prime minister. She is an old enemy of Yanukovich's going back to 2004 when she led the "Orange Revolution" protests which doomed his first bid for the presidency.
The leadership of her Batkivshchyna (Fatherland) bloc has yet to make a declaration on the election. The count showed it with an estimated 103 seats, down from 156 at the last election.
The Ukrainian nationalist Svoboda party, which is allied to other far-right groups in Europe, said votes had been stolen from its candidates and its leader threatened street action alongside Batkivshchyna and other opposition groups.
"We have evidence of large-scale theft of votes from Svoboda," leader Oleh Tyahnybok told journalists, saying that 3 percent of Svoboda's vote in the party lists and 4 seats in the single-mandate constituencies had been "stolen" from it.
"We have agreed with our partners Batkivshchyna that if there is any call for people to turn out on the streets in mass demonstrations then we will do this only together," he said.
Communist leader Petro Symonenko called Svoboda's arrival in parliament "a tragedy for Ukraine", harking to European fascism: "I refer you to the history of the 1920s and 1930s."
(Reporting by Pavel Polityuk and Olzhas Auyezov)