UPDATE 1-Czech FinMin: Budget may pass first hurdle - paper

(Adds quotes from Communist, Social Democrat, analyst)

PRAGUE, Oct 24 (Reuters) - The Czech 2007 draft budget may clear its first parliamentary hurdle after three opposition parties indicated they could vote for it, Finance Minister Vlastimil Tlusty was quoted as saying on Tuesday.

The minority government's draft budget, targeting a deficit of 91.3 billion crowns ($4 billion), is due to start its first reading in the lower house of parliament on Wednesday and support from opposition parties is needed for it to pass.

Tlusty told the daily Pravo newspaper that the centrist Christian Democrats, the Greens and the Communists had objected to the budget's structure, but signalled they may let it go through in the first of three readings.

"I am quite favourably surprised," Tlusty was quoted as saying in an interview. "(This) raises hopes for not only the budget but also for political and economic stability in the country."

The cabinet of Civic Democrat Prime Minister Mirek Topolanek remains in power as a caretaker administration after losing a confidence vote earlier this month.

The five-month-old parliamentary deadlock following by a June election has fanned investor concerns that the country was unlikely to approve fundamental fiscal reforms needed to rein in a burgeoning budget deficit and prepare for euro adoption.

The Communists said they were looking to avoid a provisional budget which would take effect if there is no approved budget in place by Jan. 1. The provisional budget keeps revenue and spending at the same level as in the previous year.

"So even if the state of public finances is chaotic, (the budget) must go through in the first reading so that there can be negotiations over it," Communist Vice-Chairman Jiri Dolejs told Reuters.

But the Social Democrats, the second biggest party in the house after the Civic Democrats, have stuck to their guns and remain opposed the draft.

They have said they could support the proposal only if Topolanek's government drops a plan to sell a small stake in utility CEZ <CEZPsp.PR> to raise 31 billion crowns ($1.37 billion) needed to tackle the deficit.

"If we find some suitable solution to the CEZ (stake) sale, then -- after certain structural changes to the budget -- it would be possible to support the budget in both the first and final reading," Bohuslav Sobotka, Social Democrat deputy and former finance minister, was quoted as telling Pravo.

Analysts warned that apart from the actual budget draft, parliament had yet to approve bills delaying the rise in welfare spending, approved before the June election, beyond 2007 to prevent the budget deficit from overshooting the target.

"If any one of them fails to win support in parliament, the state budget would be at risk of breaching the targeted deficit," said Pavel Sobisek, chief economist at HVB Bank.

((For FACTBOX on budget forecasts and the process and timeline of approving a budget draft, double click on [ID:nL16534799]))

((Reporting by Marek Petrus and Jan Korselt; Editing by Mike Peacock; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477)) ($1=22.57 Czech Crown)

Keywords: ECONOMY CZECH BUDGET