Czech markets ignore election, eyes on second round

PRAGUE, Oct 23 (Reuters) - Czech financial markets took a strong showing by the outgoing rightist government in weekend Senate elections in stride on Monday, focusing on the second round for signals of ending a lengthy parliamentary deadlock.

The rightist Civic Democrats of outgoing Prime Minister Mirek Topolanek dominated the first round of elections for one third of the upper house and municipal polls at the weekend.

His party's candidates advanced ito a run-off second round in 26 out of 27 contested Senate districts, while the leftist Social Democrats advanced in 11 districts. However, the Civic Democrats are defending 10 seats while the Social Democrats just one.

The results have no direct impact on a stalemate in the lower house, where both centre-right and left-wing camps won the same number of seats in a June election, resulting into Topolanek's failure in a confidence vote earlier this month.

But the results so far have boosted Topolanek and his calls for an early lower house election next spring. A strong showing for his party in the second round -- to be held on Oct. 27-28 -- is expected to increase support for his idea of early polls.

"The victory reinforces the Civic Democrats in their current strategy: In no way go with (Social Democrat chief Jiri) Paroubek, go for early election at all cost," said commentator Petr Kambersky in the daily Hospodarske Noviny.

"An (early) election is closer although still far off."

The crown currency traded flat a touch off at 28.34 to the euro <EURCZK=>, while bond yields rose marginally in line with German Bunds and stocks were 0.6 percent firmer.

The Civic Democrats have been fiercely opposing a grand coalition, while the Social Democrats have been rejecting early polls. An electoral loss in the Senate elections could make them dig their heels even deeper if their support is on the wane.

Pavel Mertlik, chief economist at Raiffeisenbank and a former finance minister, said the second round would indicate the way the government and election talks move, which in itself would be benefitial.

"We do not expect strong immediate market reaction but from longer-term perspective the increased predictability of politics should reduce investor uncertainty and improve market sentiment," he said.

Short of finding an agreement with the Social Democrats on holding early elections, the Civic Democrats will have to court the far-left Communists, or go through the lengthy process which allows the president to dissolve parliament and call an election only after three successive government lose confidence. ((Reporting by Jan Lopatka, editing by ; prague.newsroom@reuters.com; Reuters Messaging: jan.lopatka.reuters.com@reuters.net; +420-224 190 474))

Keywords: MARKETS CZECH POLITICS