* Agreement to make banking reform easier
* Fail to agree on broader-based measures
* United political front fails to materialise
(Updates with details, comment, background)
By Axel Bugge
MADRID, May 5 (Reuters) - Spain's Socialist government reached a deal on Wednesday with the main opposition party to unblock stalled plans to merge regional savings banks which are under threat from a property market bust.
Prime Minister Jose Luis Rodriguez Zapatero, struggling to convince markets Spain is not going to need a bailout like Greece, said he had agreed with centre-right Popular Party leader Mariano Rajoy to push for details of mergers to be available by June 30.
The savings banks, known as cajas and largely unlisted and with close links to regional governments, are disproportionately exposed to Spain's sagging property market, both via property loans and loans to struggling property developers.
The government set aside a fund of up to 99 billion euros last year to help the banks consolidate, but so far there has been no progress, largely due to rivalries between regions controlled by different political parties.
With this obstacle removed, a restructuring seen by the Bank of Spain as essential if the Spanish banking system is to weather steadily rising non-performing loans should be able to proceed.
"The important thing is that there is agreement between the main political parties," Zapatero told journalists after his first formal meeting with Rajoy since 2008.
"We have reached two agreements, ... firstly, to facilitate the (banks') restructuring process and secondly ... to propose a reform of savings banks legislation," Rajoy told reporters.
Cleaning up the cajas, and thereby stimulating bank lending, is vital for reviving Spain's economy, which has had seven consecutive quarters of economic contraction as it struggles with lack of competitiveness and a post-boom legacy of private sector debt.
HUGE PROPERTY EXPOSURE
On the other hand, if losses in the financial system mount, bond market doubts over Spain's ability to cut its budget deficit -- already strained, especially with Spanish unemployment at 20 percent, the highest rate in the euro zone -- will increase still further.
The Socialist government has promised to reduce the budget deficit to below the EU limit of 3 percent of GDP by 2013 from 11.2 percent last year with measures including a hike in value-added tax.
Spain's financial system, including both big listed banks and the cajas, had about 445 billion euros of loans to the property sector on its books at the end of last year, according to the Bank of Spain, equivalent to close to half of Spain's GDP.
Raj Badiani, analyst at IHS Global Insight, said the agrement was welcome, even if partial.
"It's positive as reforms cannot become bogged down in political in-fighting, even if much work needs to be done. Markets want to see rapid action on reforms and anything that can be done to speed them up is welcome," Badiani said.
Zapatero and Rajoy also agreed on new legislation for savings banks to increase capital by issuing shares with voting rights, a measure to be carried out within 3 months. This is aimed at reducing political control over the cajas in the future.
Still, Spanish financial markets slumped again on Wednesday as fears over the euro zone's peripheral economies persisted. The stock market was down 3.5 percent and the spread on Spanish 10-year government bonds over German Bunds was at 134 basis points, a euro life-time high.
(Additional reporting by Elisabeth O'Leary)
(Editing by Jason Webb and Stephen Nisbet)