Austria moves towards centrist coalition deal after far right fails

VIENNA (Reuters) - Austria's two biggest centrist parties are moving quickly towards a coalition deal without the far-right Freedom Party (FPO) after it failed to form a government, party officials said on Thursday.

It would be third time lucky if the conservative People's Party (OVP) and Social Democrats (SPO) managed to strike a deal with some degree of support from smaller centrist parties, since a first effort led by the OVP failed in January, then an attempt led by the eurosceptic, Russia-friendly FPO collapsed last week.

This is the longest it has taken Austria to form a government since World War Two. If no solution is found soon a snap election is likely, with opinion polls suggesting the FPO would increase its share of the vote from 29%, with which it secured first place in September's parliamentary election.

President Alexander Van der Bellen, who oversees the formation of governments, said after the FPO-led effort collapsed that four options remained: a snap election, which cannot be held sooner than in about three months; a minority government; a fresh stab at forming a coalition that could command a majority; or a temporary government of experts.

The closer the OVP and SPO come to a coalition agreement, the more likely Van der Bellen is to name a centrist coalition as the preferred option. The two parties have been working intensively behind closed doors to strike a deal fast.

Party spokespeople said they could neither confirm nor deny reports by two regional newspapers on Thursday morning that an agreement had been reached on how to bring the budget deficit back within the European Union's limit of 3% of economic output.

The FPO and OVP announced a similar deficit agreement three days into their doomed talks.

Officials from the SPO and OVP, speaking on condition on anonymity, cautioned that it was hard to say when a wider coalition deal might be completed, but said talks were advancing quickly and an agreement might be ready by next week.

(Reporting by Francois Murphy; editing by Giles Elgood)