LISBON (Reuters) - Portugal's president on Tuesday invited caretaker Prime Minister Antonio Costa to form a new government after his centre-left Socialists won Sunday's election, expanding their parliamentary representation but landing just shy of a full majority.
After meeting the leaders of all parties in the new parliament one by one throughout the day and "taking into account the election results", President Marcelo Rebelo de Souza said in a statement that Costa was now the premier-designate.
On Wednesday, Costa will open talks with his minority government's far-left allies in the previous legislature, the Communists and Left Bloc, on a potential renewal of their deal, the Socialist Party said.
He also intends to negotiate with the environmentalist People-Animals-Nature party, which won four seats, and the left-wing newcomer Livre, which has one lawmaker.
However, Costa and other leftist leaders have not ruled out foregoing long-term commitments, meaning the government would have to negotiate support on a case-by-case basis.
Although more risky, such an option would leave Costa free also to negotiate in the future with the opposition centre-right whose stance on the need for fiscal discipline and debt reduction is similar to his own.
Left Bloc leader Catarina Martins said earlier she was ready to "negotiate solutions for the duration of the legislature", whereas Communist leader Jeronimo de Souza said his party wanted to "preserve its strategic independence" rather than agree a long-term deal.
With at least 106 Socialist seats in the 230-strong house, Costa needs the support of just one of his partners in the previous legislature, where his party had 86 seats, to have a working majority needed to pass laws.
Costa can now name his cabinet ministers, but it is up to lawmakers to decide on the new government's programme, which must be presented within 10 days. If parliament decides to vote on it and it is rejected, the government could collapse.
Analysts, however, do not expect any major obstacles for the Socialist government to be allowed to rule.
Next year's budget is likely to prove its first big test, with the far-left demanding more public spending, while Costa insists on sticking to strict expenditure controls to achieve a budget surplus next year.
(Reporting by Catarina Demony and Sergio Goncalves; writing by Andrei Khalip; Editing by Sandra Maler and Gareth Jones)