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MADRID (Reuters) - There is no risk of a snap national election in Spain, Prime Minister Mariano Rajoy said on Monday, playing down any threat to his minority-led government from a change of leadership in the opposition Socialist party.
The track record of left-winger Pedro Sanchez, ousted as Socialist leader in October and re-elected to the post on Sunday, points to less cooperation with the government on major cross-party issues including labour reform and budget spending.
But Rajoy noted his government had already passed legislation during its seven-month tenure without the backing of the second-biggest party in parliament.
"There won't be early elections," he told journalists on Monday. "The Socialist party changes nothing for me. I'll try and reach agreement with them on issues, but if we don't reach an understanding, so be it."
Financial markets - attuned to political tensions in the euro zone after Austria, the Netherlands and France have this year fended off populist challenges at elections - reacted nervously to Sanchez's election on Monday.
By 1240 GMT, Spain's Ibex was down 0.3 percent while the broader pan-European STOXX 600 index was flat. The yield on the country's 10-year benchmark bond rose about 5 basis points, with gains trimmed slightly after Rajoy's comments.
Spanish analysts and commentators took a more sanguine view.
"I don't think the new PSOE (Socialist) secretary general is interested in destabilising the government right now," wrote the editor of El Mundo newspaper, Pedro Guartango, in an editorial. "He is more likely to play for time and build an alternative to Rajoy."
The PP holds 134 seats in parliament, compared to 84 for the Socialists. For a no-confidence vote in Rajoy to pass, the Socialists would have to join forces with far-left newcomer Podemos - an alliance they failed to create in the past - and PP ally Ciudadanos would have to abstain.
Rajoy has been able to pass policies without the support of the Socialists by counting on the support of market-friendly Ciudadanos and others.
Spain's long-delayed 2017 budget is due for a parliamentary vote of approval in coming weeks and the PP says it has the backing to pass the bill after courting regional governments in the Basque country and the Canary Islands.
Rajoy had warned that if the 2017 budget was blocked he would call fresh elections.
Sanchez's re-election despite presiding over a slump in support carries parallels with the continued party backing for his counterparts in Britain and France, Jeremy Corbyn and Benoit Hamon, who have also performed poorly in polls.
Party leader from 2014 to 2016, Sanchez garnered the worst electoral showing on record for the Socialists when he headed the 138-year-old party in the last two elections.
The 45-year-old's first task will be to unite a bitterly divided party, which he promised to do in his victory speech late on Sunday.
Additional reporting by Paul Day, Inmaculada Sanz and Tomas Cobos; editing by John Stonestreet