Nepal agrees to caretaker govt ahead of mid-year election

Nepalese Prime Minister Baburam Bhattarai speaks during an interview with Reuters at his residence in Kathmandu November 5, 2012.

KATHMANDU (Reuters) - Nepal's main political parties said on Monday they had reached an agreement to set up a unity government before a national election in the middle of the year, in a deal that could end a deadlock after a decade of civil war.

Maoist Prime Minister Baburam Bhattarai, 58, will step down and Chief Justice Khil Raj Regmi of the Supreme Court will head the new administration to oversee the vote in May or June, the parties said.

It was not immediately clear when the leadership change would occur.

The agreement reached between Maoist chief Prachanda and leaders of three main political parties in the presence of President Ram Baran Yadav addresses a major concern of the opposition.

The opposition had demanded that Bhattarai, a former Maoist rebel leader, quit in favour of a caretaker government to oversee delayed elections.

The ballot will choose an assembly that will complete the writing of a new constitution, Nepal's first after the abolition of the monarchy in 2008.

Nepal has been without a parliament since last May when the term of a special assembly expired without completing a draft of the new constitution. An election had been scheduled for last November.

The country has struggled to rebuild itself after a decade of civil war that ended in 2006, leaving more than 16,000 dead.

The ongoing instability has had a knock-on effect on the country's economy, which is heavily dependent on aid and tourism. The International Monetary Fund expects GDP growth to slow to 3.8 percent this fiscal year ending in mid-July compared to 4.6 last year. (Editing by Frank Jack Daniel and Jeremy Laurence)