Portuguese president appoints Passos Coelho as new PM

President Aní bal Cavaco Silva, announcing the decision on Thursday, rejected a bid by the Socialist opposition leader to form a government with majority leftist backing.

Portugal's president put coalition leader Pedro Passos Coelho back as prime minister on Thursday, igniting protests from leftist parties that could quickly challenge a new centre-right government in parliament where they have majority control.

The prospect of a sudden shift from a government that co-operated closely with worldwide lenders, to one with anti-austerity and anti-EU leanings, sparked concern among conservative governments and fiscal markets in the Eurozone. Costa, 54, has said he won't block a new Coelho government if he can't offer a stable alternative.

Portugal's president has invited the center-right coalition government of the past four years to return to power after it won a general election, even though it will be outnumbered in Parliament by opponents who vow to force it out within days.

Although Passos Coelho's coalition was a clear victor in the vote, it failed to achieve an overall majority in parliament.

Passos Coelho hopes to be able to count on support from any center-left Socialists (PS) unhappy about the notion of an alliance with the radical Far Left (Bloco de Esquerda) and the hard-line Communist Party (PCP). After that, they need parliament's approval for their four-year policy program - which the center-left parties said they won't grant. "This is the worst moment to radically alter the foundations of our democratic regime".

Left-wing leaders reacted furiously to Cavaco Silva's speech.

"I give this government a week or a week and a half", said Left Bloc lawmaker Filipe Soares.

He said Mr. Cavaco Silva had created an "unnecessary political crisis" by re-appointing Mr. Passos Coelho.

Cavaco Silva's reason for defying the parliamentary majority and reappointing the Passos Coelho government reflected his own right wing and anti-communist political views, but also pressure from European Institutions.

The President called for parliamentarians from the Socialist Party to dissent from their party's instructions and support this government.

Coelho's coalition took more than 38 percent of votes in the election, despite overseeing four years of painful austerity in the bailed-out country, but it lost its absolute parliamentary majority.

If that programme were to be rejected, the President would then most likely turn to the second biggest party, which would be the Socialists. The country was able to exit the bailout program past year.

The political wrangling has prompted concerns that it could blight Portugal's nascent economic recovery, just a year after it finished a bailout. Portugal also signed onto the European Stability Pact, which requires that members of the European Union adhere to very strict limits on running budgetary deficits.

"Portugal seems to be entering a period of uncertainty and the rhythm of the (economic) reforms risks being slowed down", said Jesus Castillo, economist at Natixis bank. "Political uncertainty, however, is part of democracy". Portugal's economy, which shrank more than 6% between 2011 and 2013, is expected to grow 1.6% this year, but unemployment remains high, at around 12%. "This new prime minister will fall in parliament".

The Socialist Party, the Left Bloc - allied with Greece's anti-austerity Syriza party - the Communists and Greens won 122 of the parliament's 230 seats, compared with 107 for the right-wing coalition.