Austrian coalition talks to continue into the new year, party leaders say

VIENNA (Reuters) - Austria's coalition talks will continue into the new year as the three centrist parties involved are only beginning to seriously grapple with how to rein in the budget deficit, their leaders said on Tuesday.

Chancellor Karl Nehammer's conservative People's Party (OVP), the Social Democrats (SPO) and liberal Neos hope to form Austria's first three-party government since 1949 but must bridge large ideological divides on issues like taxation, with the SPO resisting the others' urge to focus on cutting spending.

They are under growing pressure to reach a deal. The far-right Freedom Party won the largest vote share in September's general election but was not tasked with forming a government because no other party was willing to go into government with it, and it would have needed a coalition partner to govern.

"There will be no government under the Christmas tree, but there is a shared will and ambition to make progress this week," Neos leader Beate Meinl-Reisinger told a news conference with her counterparts from the two other parties.

"It is palpable that there is momentum ... I am also aware that (public) impatience is growing," she said, adding that they were seeking savings of 18 billion euros to 24 billion euros ($19 billion-$25 billion).

Poor growth in trading partners such as Germany and low consumer confidence have slowed Austria's economic output, which is set to shrink for the second year in a row. That has hurt the tax take and swollen the deficit.

Economic think-tank Wifo and the Austrian National Bank predict the budget deficit will swell to 3.7% of gross domestic product this year, breaching the European Union's 3% limit, and grow to 4% or more next year.

Nehammer said the talks would continue "intensively over the Christmas holidays into the new year and then we will be able to see slightly better how far we have actually come".

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(Reporting by Francois Murphy; Editing by Mark Potter)