UPDATE 2-Spain's labour talks end; focus now on politics

By Tracy Rucinski

MADRID, June 10 (Reuters) - Labour reform talks between Spain's government, unions and business ended without agreement on Thursday and the minority Socialists will now focus on building support in parliament for passage by the end of June.

The reforms, aimed at loosening a rigid labour market, are essential to ensuring Spain's long-term economic recovery and to easing market fears of a Greek-style debt crisis.

The government has started talks with smaller political parties on the job reforms, Spanish media have said, and will present a working document with its proposals at Friday's cabinet meeting.

With the largest opposition Popular Party sure to vote against any Socialist proposals, the government depends on regional parties like the Catalan Nationalists (CiU) to pass any legislation.

The CiU's 10 votes would be enough to push the reforms through parliament. Without them, the government would have to cobble together votes from an array of other parties.

A 15-billion-euro ($18.35-billion) austerity plan scraped through parliament by one vote in May after the Catalans abstained. The CiU told Spanish television on Wednesday it would not abstain this time, however, and would vote for or against.

Spanish government bond yields have surged in the past three weeks because of worries about the country's ability to cut its deficit and implement economic reforms. A 3-year bond auction on Thursday will be an indication of the appetite for Spanish sovereign debt.



DOOR STILL OPEN

The government said it was open to informal discussions with unions and business leaders after all-night talks ended in the early hours of Thursday, and planned to have bilateral meetings with both parties on Friday.

In the meantime, the government's draft would go to politicians and the cabinet, with an eye to the cabinet passing the final document sometime next week, possibly at a special meeting on June 16, a labour ministry spokesman said.

That deadline could always be extended, he said.

'If it really looks like we can get an agreement (with unions and business leaders), it could go on another week,' he told Reuters.

The government has said it wants the labour reform programme to be wrapped up by the end of June. Failure in parliament would be a huge blow to unpopular Spanish Prime Minister Jose Luis Rodriguez Zapatero and could even force him to call an early election.

Spain's two-tier system drastically divides temporary and permanent workers, offering few rights to the former while the latter are prohibitively expensive to lay off. This means younger workers are often cheaper to let go even at the cost of productivity.

The reform aims to extend the use of permanent contracts to tackle the highest unemployment rate in the euro zone at 20 percent.

Unions have opposed the reforms which they say violate workers' rights.

'The differences are fundamentally about the cost and reasons for firing,' Fernando Lezcano, a spokesman at Spain's largest union Comisiones Obreras, told Reuters after the talks.

A nationwide public sector strike against the austerity plans on Tuesday was deemed a failure by Spanish media as it did not disrupt services or attract many people to evening marches.

Tuesday's strike action was seen as a litmus test for support for a general strike which unions have threatened to call if they are unhappy with the labour reform proposals.

Unions called on the 65,000 workers at Spain's state-owned postal service to join a 24-hour strike on Thursday against a new law aimed at liberalising Spain's postal system, separate to the austerity measures passed last month.

For a factbox on Spanish labour reform, see

(Additional reporting by Jose Rodriguez; Editing by Sonya Hepinstall) Keywords: SPAIN LABOUR/ ([e-mail]; [phone]; Reuters Messaging [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.