By Igor Ilic and Ivana Sekularac
ZAGREB (Reuters) - The conservative Croatian Democratic Union (HDZ) was on track to win the most seats in Sunday's parliamentary elections but the country looked set for lengthy coalition horsetrading after voters once again declined to return a clear governing majority.
With 60 percent of votes counted, the HDZ had 61 seats, pushing the Social Democrats into second place with 54, but were still short of a majority in the 151-seat parliament even with the support of Most ("Bridge"), the likely kingmaker party.
In a sign of voter disillusionment, turnout plunged, and Zivi Zid ("Human Shield"), a populist left alliance, surged from one to eight seats with promises to be tough on banks and demands for prosecutions of unnamed corrupt officials.
The HDZ seems best placed to form a government, but it could be difficult for any party to build a coalition with a clear mandate for carrying out the painful public administration reforms being urged on the country of 4.3 million.
"I am sure that we are the party that will have the privilege of forming a stable government for the next four years," said Andrej Plenkovic, a soft-spoken diplomat and European parliamentarian who was only recently made leader.
The European Union wants its youngest member to tame high public debt, cut the budget deficit, restructure public administration and improve the business climate to spur growth in an economy still dominated by state enterprises.
Most, which was headed for 12 seats, has said implementing its liberal reforms is its pre-condition for entering a coalition. But any governing majority may need support from other, smaller parties, including deputies of ethnic minorities.
"STABLE GOVERNMENT NEEDED"
The HDZ, which led the country through its first turbulent years of independence and war after the break-up of Yugoslavia 25 years ago, will face a fight from the SDP, whose leader Zoran Milanovic still held out hope of forming a government.
"The votes are still being counted," Milanovic said. "Croatia needs a stable government and at this moment we still don't know what that government will be."
Neither party offered much detail during the campaign on how they would deliver promised higher standards of living in one of Europe's weakest economies, where unemployment runs at 13 percent.
The previous HDZ-Most government collapsed acrimoniously after just five months amid rows over public administration reforms and government appointments.
Turnout was 10 percent down from the previous vote 10 months ago, with politicians seen as having failed to get to grips with the country's economic woes, compensating with nationalist rhetoric and gestures that have brought relations with Serbia to their lowest ebb since the 1990s Balkan wars.
Three years after joining the EU, Croatia's record on securing European funds is poor, a reflection of public administration shortcomings that contribute to macroeconomic imbalances the European Commission says must be fixed.
Growth of 2.5 percent is far short of the 4 percent needed to make a dent on living standards, analysts say. With interest payments on public debt eating up 3.5 percent of output, Croatia's next government will have little room for maneuver.
(Writing by Thomas Escritt; Editing by Mary Milliken)