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WRAPUP 3-India ally puts off decision to quit, holds talks
* Fence building talks to avert crisis
* Coalition weakened but not at risk
* Little appetite seen for national election
(Adds Singh's comments on graft, party official)
By Sanjeev Miglani
NEW DELHI, March 7 (Reuters) - A key member of India's Congress-led coalition put off its plan to resign ministerial posts until Tuesday, offering respite to a government fighting to win back public trust after a raft of corruption scandals.
The Dravida Munnetra Kazhagam, which gives Prime Minister Manmohan Singh's coalition vital support in parliament, had said its six ministers would quit the coalition on Monday because of a row over seat to be contested in a local election next month.
But a leader of the southern party said the two sides were holding talks to resolve the dispute that has underlined the shaky nature of the federal coalition.
"The resignations are on hold," DMK leader M.K. Stalin told reporters.
The announcement by the regional group that it was leaving the cabinet was the latest in a series of problems that Singh has faced, ranging from corruption scandals to an inability to push through reforms in parliament.
The coalition was not in danger of collapse even if the DMK ministers left because the party said it would continue to give conditional support to the government.
The Congress Party could also seek support from other regional groups to boost its numbers in parliament, as few want to face an election more than three years ahead of schedule.
But the cracks in the ruling alliance have reinforced the image of an administration adrift, unable to tackle a culture of corruption or curb inflation that has stoked public anger.
PATCHING THINGS UP
Analysts said it looked increasingly likely that the Congress and the DMK would patch things up, as each was weaker without the other.
"I expect a compromise. They need each other. However bad the Congress is with the DMK, they are worse without it," said Mahesh Rangarajan of the University of Delhi.
The DMK, which has been implicated in a massive telecoms scandal, has six ministerial posts in the council of ministers, which represents the full range of the federal government.
It holds two positions -- minister of textiles and minister of chemicals and fertilisers -- in the 34-member cabinet.
Singh's coalition has a majority of one, with 273 members in the 545-seat lower house of parliament.
A political party based in the north has said it would consider supporting the coalition if it was approached.
Indian shares dropped 1.4 percent on Monday, with rate sensitive sectors contributing the most to losses, hit by political worries and surging crude oil prices.
"DMK's pullout will add to the already weak investor sentiment," said Arun Kejriwal, director of research firm KRIS.
"The uncertainty over the political scene will lead to a volatile market.".
Ties between the Congress and the DMK have been strained since former telecoms minister A. Raja, a DMK member, was fired from and detained for selling 2G telecom licences at low prices which an audit said had cost the governemtn $39 billion loss.
The scandal, said to be India's biggest, has deeply embarrassed Singh who has seen his unimpeachable reputation dashed to the ground.
In February, he bowed to demands for a parliamentary investigation into the scandal after months of protests by the opposition stalled the assembly's last session.
On Monday, Singh appeared before parliament, accepting responsibility for naming a civil servant to the country's top anti-graft watchdog even though the officer was himself facing allegations of wrongdoing. He made similar comments on Friday.
"There has been an error of judgement and I accept full responsibility," he said following the Supreme Court's decision last week cancelling the appointment of the tainted officer. (Additional reporting by C.J.Kuncheria and Henry Foy in NEW DELHI, S. Murari in CHENNAI; Editing by Ron Popeski)
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