BUCHAREST, Nov 5 (Reuters) - Romania's president will nominate a new prime minister from his own political camp, he said on Thursday, spurning the opposition's pick and prolonging a policy deadlock before this month's presidential election.
Parliament has already rejected Basescu's first choice and analysts said it would do the same again, extending the crisis that has jeopardised a 20 billion euro ($29.70 billion) IMF-led rescue deal for the European Union member state.
Financial markets have responded to the increased risk by demanding higher interest on Romanian debt. On Thursday, the government rejected all bids at a tender for 5-year treasury bonds, because yields were unnacceptably high.
Credit default swaps on 5-year bonds were up 10 basis points to 285 and have risen 85 basis points in the last six weeks, meaning it now costs $85,000 more to insure $10 million of bonds against default.
The crisis, which began when parliament toppled a centrist cabinet last month, is complicated by wrangling among rival parties ahead of the presidential election.
The ballot -- a Nov. 22 first round and a likely Dec. 6 runoff -- is one of Romania's most important votes since the fall of communism, as the victor will pick the head of the next two governments and influence long-delayed economic reforms.
The opposition-dominated parliament rejected Basescu's first pick on Wednesday and asked him to name theirs, provincial mayor Klaus Johannis. The president refused.
'The prime minister will represent the party with the most seats in parliament: PD-L,' Basescu told radio Realitatea FM, referring to the centrist Democrat-Liberal Party.
His statement boosted expectations that no new government is likely before the presidential election.
'I expect one or two days of political consultations with Basescu (and then) a PD-L proposed premier, who will then fail in a parliamentary vote,' said political analyst Mircea Marian.
'I expect things to crawl along until after the second round of election when the next president will be known.'
Romania's three most powerful politicians -- Basescu, Social Democrat leader Mircea Geoana, and Liberal Crin Antonescu -- are vying for the 5-year presidency.
The winner faces a raft of reform challenges such as fixing creaky pension and state payroll systems, but is also expected to lead the country into the euro zone in around 2014.
The International Monetary Fund and European Commission have warned they could postpone aid payments to Romania, a Black Sea country of 22 million people and one of the EU's poorest states.
The IMF has said it may delay a third, 1.5 billion euro loan tranche unless politicians approve a 2010 budget with a deficit of 5.9 percent of gross domestic product by Dec. 10. Analysts say pre-election bickering will prevent that happening.
Although parties have backed spending cuts to stabilise the economy, none has tackled the details of the IMF-prescribed reforms, which could include 150,000 public sector job cuts and reductions to pensions and state wages. No party is expected to endorse them ahead of the vote.
On Thursday, the Liberals stood firm on their choice of Johannis for premier and rejected talks with Basescu's allies.
'I see no reason to negotiate with the PD-L ... this means a de facto alliance with Basescu. This is unacceptable now and after the election,' said Antonescu, who heads the grouping.
Some analysts suggest Basescu may dissolve parliament and call snap polls to end the crisis, but he dismissed the idea.
'Early polls would not be desirable ... they are a mechanism to unlock parliament crises, but I think Romania cannot bear another round of elections,' Basescu said.