By Sonya Dowsett
MADRID (Reuters) - Acting Prime Minister Mariano Rajoy failed in a second attempt on Friday to win parliament's backing to form a government, increasing the likelihood that Spain will have to hold another election - its third in a year.
After inconclusive elections in December and June, an entrenched stand-off between the parties has left Spain without a government for eight months, posing a threat to the economic recovery and putting a freeze on spending plans.
Rajoy, leader of the center-right People's Party (PP), stumbled at the first attempt to win a second term on Wednesday when he fell six short of the 176 votes needed for an absolute majority in the 350-seat assembly.
In Friday's vote he needed just 11 abstentions to get a simple majority and form a PP-led minority government but, as expected, the same 180 members of parliament that rejected him on Wednesday repeated their votes.
Rajoy's PP and opposition parties now have until Oct. 31 to strike a deal before another election is called automatically. Under the timeline imposed by Spanish law, the next ballot could fall on Christmas Day, although politicians said they would do all in their power to bring it forward by a week.
Rajoy said in a speech ahead of Friday's vote that a December election would come too late to draft spending plans for next year or repair damage to economic growth.
"Not having a government has a high cost and all of us Spaniards will have to pay," he said.
FOCUS ON REGIONS
The impasse is beginning to weigh on Spain's strong three-year economic rebound from recession which saw the country post one of the highest growth rates in the euro zone in the second quarter.
Bond yields have crept higher this week, increasing the government's borrowing costs as investors become more cautious. Opinion polls so far have shown that a third election would deliver another hung parliament.
Acting Economy Minister Luis de Guindos said on Thursday that Spain would fail to meet its budget commitments for 2017 unless it got a stable government soon. It must present a 2017 fiscal plan to the European Commission by mid-October.
After Rajoy's failure in both votes, the focus now shifts to regional elections on Sept. 25 in the Basque Country and Galicia. There is unlikely to be any deal before those elections are out of the way, analysts say.
Rajoy's anti-regionalist rhetoric has damaged his standing with Basque and Catalan parties that have traditionally helped support minority governments at a national level. Not one supported him in the parliamentary votes.
But depending on the outcome of the Basque ballot, the PP could try to get support from a small conservative party there, the PNV, for another parliamentary vote of confidence at a later stage in exchange for helping it govern at a regional level.
So far the PNV has said it would not back that plan.
However, the Socialists may be more open to negotiations once the regional ballots are over, once it no longer has to worry about alienating its supporters in those elections by allowing a second PP-led government beforehand.
(Editing by Angus Berwick and Robin Pomeroy)