Reuters International

Spain's acting prime minister and People's Party (PP) leader Mariano Rajoy waves to supporters at party headquarters after Spain's general election in Madrid, Spain, June 27, 2016. REUTERS/Marcelo Del Pozo

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By Angus Berwick and Sarah White

MADRID (Reuters) - Spain's caretaker prime minister, Mariano Rajoy, said on Monday he hoped to form a coalition government within a month, after his conservative party emerged from weekend elections with the biggest number of seats but short of an outright majority.

Spanish voters delivered a hung parliament for the second time in six months in Sunday's general election, heightening political uncertainty in Europe after the shock Brexit vote.

Rajoy's conservative People's Party (PP) emerged as the only major party to gain ground from inconclusive elections held last December, as voters flocked back to traditional parties and abandoned newcomers.

With global financial markets in turmoil over Brexit, Rajoy's conservative People's Party (PP) is under pressure to find backing from the second-placed Socialists and smaller centrist party Ciudadanos to form a stable government.

"I have to try to reach a majority to govern because without it, it's very difficult," Rajoy told Spanish radio. "I believe that within a month we should have a deal on the basics. It would be nonsense to lose time for several more months."

The PP won 137 seats, up from 123 in the December poll but short of the 176 needed for an outright majority.

Rajoy said he would propose a coalition between the PP and its longtime Socialist opponents, who won 85 seats. Ciudadanos, which came fourth, could also join if it wanted to, he said.

"There is willingness (from the Socialists) to talk," Rajoy said. He hoped the talks could be wrapped up by July 19 when the new parliament is operational.

The socialist party has yet to formally take a position on the next government, but it signalled on Monday it was ready to enable a PP-led minority administration. A senior party official said this should happen as soon as possible.

The Socialists are opposed to joining a grand coalition with the PP but political experts say they could allow the PP to govern in minority by abstaining from votes of confidence.

Spain's economy has so far proven immune from any contagion from prolonged political uncertainty in the euro zone's fourth-largest economy, but it cannot remain so, analysts say.

"A minority government may not be able to pass material reforms, as it would require unlikely support from a fragmented parliament. In our view, such inertia would hurt Spain's medium-term growth prospects, especially as we see actions needed on fiscal issues and labour markets," Barclays bank said in a note.

"In addition, a minority government may not be able to sustain a full four-year mandate," it also said.

(Additional reporting by Paul Day; Editing by Julien Toyer and Mark Bendeich)

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