* Investors need to see credible PM, programme, quickly
* Hungary must move fast to cut spending, debt
* Forint seen weakening Monday but only moderately
By Krisztina Than
BUDAPEST, March 22 (Reuters) - The problems besetting Hungary's economy risk turning into a full-blown crisis unless the country very quickly finds a way out of political gridlock and implements much-needed fiscal and structural reforms.
Prime Minister Ferenc Gyurcsany unexpectedly offered on Saturday to step down in favour of a new government better equipped to implement the reforms, and until his administration is replaced, uncertainty will continue to weigh on Hungary's markets and investor sentiment.
With time rapidly running out for a solution, Hungary's forint currency, which hit record lows versus the euro earlier this month, will likely weaken when financial markets open on Monday, analysts said.
But any immediate fall in the currency is expected to be contained.
The eventual verdict of foreign investors, who finance Hungary's large debts, will depend on whether Gyurcsany's Socialists - which have run a minority government for close to a year - and opposition parties can agree on a credible leader and commit to a programme of spending cuts and reforms to put the economy on a sustainable track.
For Hungary, which had to resort to a $25.1 billion International Monetary Fund-led rescue package last October to avert financial meltdown, time is running out as it is able to finance itself only with the help of the IMF money this year.
"Generally a change like this has a negative impact but this government has been struggling for a long time," said Gergely Tardos, an analyst at OTP Bank.
"The reaction will depend on (who) the new prime minister (is)," he added.
Gergely Suppan at Takarekbank said the forint will likely react with modest weakening on Monday, though it could fall more sharply only if global sentiment is negative.
"I see a mildly negative opening, wait-and-see mode and players will wait to see what kind of names come up," he said.
"A certain caution is justified by the markets, but at the same time it is a positive that this (change) could open the room for a technocrat government," he added.
The Socialists have been unable to pass meaningful reforms to ensure that government debt will fall in the medium term, and a deeper-than-expected recession this year threatens a budget overshoot unless further cuts are made.
The economy is seen contracting by 4.5 percent, according to the latest Reuters poll, but some analysts warned the downturn could be deeper, even around 5-6 percent as demand in western Europe collapses and job losses accelerate.
The forint fell to a record low at 317.45 versus the euro in early March as the region's currencies got hammered due to poor economic prospects, concerns over financing and the health of the bank sector.
It has recovered since to around 300, helped by a series of central bank measures which included verbal intervention, and which some dealers said may have also included the bank dipping in the market to buy forints.
CREDIBILITY IS KEY
The central bank (NBH) holds a rate-setting meeting on Monday and while a Reuters poll showed last week that analysts expect the bank to keep rates on hold at 9.5 percent, some analysts said a hike may come if the forint falls sharply on Monday due to perceptions of political risk.
"We think the probability of a confidence-boosting rate hike has increased depending on the EUR/HUF reaction in the morning," UniCredit analyst Gyula Toth said.
Suppan said he sees a hike only if the forint plunges.
The next few weeks will see more uncertainty in Hungary's markets and the longer-term reaction will depend on how credible the new leader is, and how quickly he can present a good plan.
Gyurcsany said he would step aside and organise a so called "constructive vote of no confidence" against himself by mid-April, which would allow a new leader and programme to be approved in parliament without the risk of early elections.
But even if the Socialists and the Free Democrats agree on a new leader and a programme, public support for meaningful economic reforms will still be lacking.
Fidesz, the main opposition party, said they would not negotiate on a new government and want early elections.
"At this stage we think an early election has the lowest probability," Toth said.
"From a longer-term perspective, we see only a government with very strong public support being able to take the necessary steps on the fiscal policy front."
(Reporting by Krisztina Than; editing by John Stonestreet)