By Olena Horodetska
KIEV (Reuters) - Ukrainian President Viktor Yushchenko held marathon talks on a coalition government with his political rival on Tuesday after threatening to dissolve parliament to try to force concessions from him.
Analysts said Yushchenko wanted pro-Moscow Viktor Yanukovich to commit himself to Western-leaning policies such as seeking membership of NATO and the European Union in exchange for the president agreeing to Yanukovich becoming prime minister.
Before going into talks with Yanukovich, whom he humiliated in a 2004 election, Yushchenko said he would begin procedures for dissolving parliament because it faced a crisis.
"It could be solved in two ways; it's either a search for compromise ... or dissolution of parliament," Yushchenko's spokeswoman Iryna Gerashchenko told reporters.
She said the president hoped talks with Yanukovich, and round-table negotiations between all political groups, could defuse the situation.
Yanukovich's Regions party won most votes in parliamentary polls in March in which Yushchenko's Our Ukraine party trailed a poor third.
"We still think a deal between Our Ukraine and Regions is likely," said Tim Ash, emerging markets economist at Bear Stearns investment bank in a research report. "Yushchenko is probably bluffing over early elections."
Yushchenko has until the end of Wednesday to make up his mind about Yanukovich's nomination as prime minister. It is not clear in the constitution if he has the right to reject him and what consequences there could be if he did so.
They held talks for more than eight hours on Tuesday, and Gerashchenko told reporters closed doors talks would continue through the night with a final decision expected on Wednesday.
"Today we will have only a meeting of the working group. It is most likely that the round table is an issue for tomorrow."
Dissolving parliament would mean new elections, a prospect financial markets are unlikely to welcome after four months of political uncertainty.
Some analysts say that if Yanukovich became prime minister on his own terms, Yushchenko would be a lame duck president and would therefore have little to lose by calling new elections.
If Yushchenko disbanded parliament, it could spark a standoff with the opposition majority in the chamber. They have said a dissolution would be illegal and they would ignore it.
Yanukovich's party says it is not prepared to make concessions to Yushchenko on NATO or -- another divisive issue -- on the status of the Ukrainian language.
Yushchenko humiliated Yanukovich in 2004 by winning the re-run of a presidential election that had been rigged in his rival's favour. But his Orange Revolution has spluttered. There are signs Yushchenko may be trying to conclude an electoral pact with his estranged ally Yulia Tymoshenko, which would change the electoral calculations.
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