Czech leftist party gives leader Sobotka mandate to form cabinet

PRAGUE (Reuters) - Czech centre-left Social Democrat leader Bohuslav Sobotka won a strong mandate from his party on Sunday to try to form a government with two centrist parties following an early election two weeks ago.

The nearly unanimous vote by the party's 180-strong leadership puts to rest a rebellion by several of Sobotka's underlings, who had tried to dump the chairman after the party won the election with a poorer-than-expected 20.5 percent of the vote.

Investors have largely ignored the political instability in the EU country, used to weak governments, but the political talks will have an impact on tax policies especially for big companies. The central bank delivered a much bigger shock to markets on Thursday when it started selling the crown currency to ease monetary policy.

Now Sobotka will start negotiations with the new centrist ANO party set up by billionaire Andrej Babis, which won 18.7 percent on promises to streamline state bureaucracy and wipe out corruption that has angered voters and damaged traditional parties.

He will also negotiate with the Christian Democrats, a smaller centrist formation that returned to parliament after dropping out in 2010.

The three parties together won 111 out of the 200 seats in the lower house of parliament, as the previously ruling centre-right parties suffered a crushing defeat.

"Social democrats are ready now to negotiate responsibly to create the new government and we will strive to put as much as possible of our winning program into its agenda," Sobotka, a former finance minister, said.

He said the negotiations will commence right away, first with the ANO party and then with the Christian Democrats. Sobotka has said earlier that he aims to complete the formation of the government by the end of the year, replacing a caretaker administration appointed in July after the centre-right cabinet collapsed.

The mandate will also help Sobotka in securing appointment as prime minister from President Milos Zeman, who has long had a poor relationship with Sobotka and had hinted he may have preferred Sobotka's now defeated party rival Michal Hasek as prime minister.

Hasek resigned as party vice-chairman on Friday as he faced a defeat at the Sunday meeting.

The Social Democrats, ANO and the Christian Democrats may agree on steps to cut fees for healthcare and the sales tax on basic items such as medicine, and on laws to improve transparency of public administration and business ownership.

But they are likely to clash over Social Democrat plans to hike taxes for firms, especially for big utilities, and on their demand to halt compensation payments for confiscated church property, approved by the previous centre-right cabinet.

Sobotka said he would put any coalition agreement to a vote within the party. Sobotka's rivals remain members of the party's 50-strong parliamentary faction, which may potentially be a weakening factor for any government relying on their votes.

(Writing by Jan Lopatka; Editing by Peter Graff)