Reuters International

A ripped electoral poster depicting Socialists leader Pedro Sanchez is seen in Lugones, Spain, April 26, 2016. REUTERS/Eloy Alonso

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By Sonya Dowsett

MADRID (Reuters) - Spaniards expressed dismay on Wednesday at the failure of their politicians to form a coalition government after four months of haggling, forcing new elections that opinion polls suggest may not break the deadlock.

With no stable government in sight, a state-controlled Spanish airport operator put its international expansion plans on hold due to the uncertainty, while foreign investors are selling shares in companies exposed to state regulation.

Top Spanish bank Santander insisted it had not seen any signs of slowdown in activity due to the impasse, but analysts have expressed concern that months of lost political direction will hinder plans to reduce one of the euro zone's biggest budget deficits.

The caretaker government confirmed earlier this month it had reduced its forecast of 2016 economic growth, albeit blaming a global weakening rather than domestic factors.

A final round of talks between the king and political parties failed to broker a coalition agreement late on Tuesday, meaning Spaniards are likely to vote in June for the second time in six months.

Many were angered by the sight of politicians trying to pin the blame on each other for the repeat elections, an unprecedented situation since the restoration of Spanish democracy in the 1970s.

"They should have reached a deal, that's what they were elected for," said Juan Carlos Relano, a 49-year-old civil servant, smoking a cigarette outside a building in central Madrid. "I would have preferred any combination of parties rather than repeat elections," said Relano, who declined to say which party he voted for in the Dec. 20 election.

That vote ended decades of domination by the ruling conservative Popular Party (PP) and the Socialists, with many turning to the anti-austerity Podemos and fellow newcomer Ciudadanos, a liberal grouping, which tapped anger over a recently-ended economic slump and high-level corruption.

No leader party came even close to securing a parliamentary majority in the negotiations.

The upper and lower houses of parliaments will be dissolved on May 2 and new elections will formally be called on May 3, with June 26 the most likely date.

Others fumed at the 150 million euro (£116.7 million) cost of elections for a country that missed its budget deficit target last year and faces spending curbs that may further pressure services such as health and education.

"All the politicians are absolutely without shame because the taxpayer will have to foot the bill for the new elections," said Esteban Navarro, a 50-year-old janitor, standing at the door of a building in the central Madrid square of Sol.

"It's like some kind of virus infects all those who enter political office," said Navarro, who voted for Podemos in December. "The moment they accept political office they start acting like the old guard."

ECONOMY

Opinion polls show support for the parties remains broadly unchanged since December, though the spectacle of politicians bickering on television may discourage many Spaniards from voting a second time. Analysts say this may help the PP and Socialists, whose supporters seem more likely to turn out.

"We failed and it gives you a feeling of impotence," said Pablo Yanez, a 26-year-old lawmaker for Ciudadanos. "The reality is that people wanted us to come to an agreement, so I'm not surprised that they're angry."

With no sign of a stable government until at least the end of July, greater numbers of companies are starting to express concerns over a possible impact on economic growth.

Many small and medium-size firms have already been hit by a freeze on public investment. Airport operator Aena said on Wednesday its international expansion plans were on hold pending greater clarity on the intentions of its main shareholder - the Spanish state.

International investors, worried that a new government might row back on reforms implemented by the PP government, have also sold shares in companies exposed to state regulation, including power companies and toll road operators.

The Spanish economy has bounced back well from recession, helped by cheap oil and historically low interest rates.

However, acting Economy Minister Luis de Guindos said on April 19 that the government was lowering its annual growth forecast for 2016 to 2.7 percent from 3 percent previously, citing a slowdown in the world economy.

Others remain upbeat, however, including Santander bank, despite reporting falling revenues in its domestic market in the first quarter on Wednesday.

"I don't think the political uncertainty is going to have a significant effect," said chief executive Jose Antonio Alvarez. "What's important is that there is a stable government, if it takes two or more months to form it's not too important."

(Additional reporting by Ana Cristina Hernandez, Jesus Aguado and Marta Ruiz-Castillo; Editing by Julien Toyer and David Stamp)

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