UKRAINE: Ukraine's president Viktor Yushchenko has held make-or-break talks on a coalition government with his political rival after threatening to dissolve parliament in an attempt to force concessions from him.
Analysts said Mr Yushchenko wanted pro-Moscow Viktor Yanukovich to commit himself to Western-leaning policies such as seeking membership of Nato and the EU in exchange for the president agreeing to Mr Yanukovich becoming prime minister.
Before going into talks with Mr Yanukovich, whom he humiliated in a 2004 election, Mr 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," Mr Yushchenko's spokeswoman said.
Iryna Gerashchenko said the president still hoped his talks with Mr Yanukovich could defuse the situation.
"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."
Mr Yanukovich's Regions party won most votes in parliamentary polls in March in which Mr Yushchenko's Our Ukraine party trailed a poor third.
Mr Yushchenko has until the end of today to make up his mind about Mr 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.
Dissolving parliament would mean new elections, a prospect financial markets are unlikely to welcome.
Some analysts say that if Mr Yanukovich became prime minister on his own terms, Mr Yushchenko would be a lame duck president and would therefore have little to lose by calling new elections.
If Mr Yushchenko disbanded parliament, it could spark a stand-off with the opposition majority in the chamber.
They have said a dissolution would be illegal and they would ignore it.
Mr Yanukovich's party says it not prepared to make concessions to Mr Yushchenko on Nato or - another divisive issue - the status of the Ukrainian language.
Mr Yushchenko humiliated Mr 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 Mr Yushchenko may be trying to conclude an electoral pact with his estranged ally Yulia Tymoshenko, which would change the electoral calculations.
An old Orange Revolution ally, Ms Tymoshenko served as Mr Yushchenko's prime minister before being sacked.