UPDATE 1-Slovenian PM hangs on at helm of minority government

* Says he will seek support for key reforms

* Finance minister quits with his party

* Slovenia battling to avoid bailout (Adds analyst quote, details, background)

By Marja Novak

LJUBLJANA, Jan 24 (Reuters) - Slovenia's prime minister insisted he would not step down despite being abandoned by a junior member of his coalition, and warned a snap election could force the country into bankruptcy.

Janez Jansa's government was stripped of its parliamentary majority on Wednesday after the Civic List party, one of five members of the ruling coalition, quit over his refusal to resign in a corruption scandal.

The walkout raised the prospect of a second snap election in little over a year and dealt a fresh blow to Slovenia's efforts to avoid becoming the latest member of the crisis-hit euro zone to seek a bailout.

"An early election would push Slovenia into limbo for several months," Jansa told a news conference on Thursday.

"Slovenia would go bankrupt in that time."

Jansa's conservative government holds only 41 seats in the 90-seat parliament and two other members of the coalition have threatened to quit unless Jansa resigns over findings by an anti-corruption commission that he failed to explain the source of part of his income.

Jansa did not rule out the possibility of an early election, but only after the adoption of reforms deemed vital to the Alpine ex-Yugoslav republic's chances of avoiding a bailout.

They include an overhaul of the judiciary and constitutional changes to prevent referendums on budget issues and to set a government debt ceiling.

He also said an election could only take place following a deal between political parties to change the electoral system to give more weight to the winning party, to avoid the kind of tortuous coalition talks that have slowed policy.

With the Civic List's departure, Jansa loses Finance Minister Janez Sustersic and one other minister. He did not say when he would nominate replacements, though both will stay in their jobs until successors are voted in.


Analysts said a minority government might succeed in pushing through some reforms, but was highly unlikely to survive until the next regular election in late 2015.

"A minority government seems a lesser evil compared with, for example, early elections, which would throw into doubt the implementation of reforms and bring months of instability at a time Slovenia needs it the least," Eurasia Group analyst Otilia Simkova told Reuters.

Opposition parties now have a chance to nominate a new prime minister, but will need majority backing in parliament. No candidate has yet emerged.

Hit by falling demand for its exports, the country of 2 million people is battling to stabilise its public finances and reassure markets.

But public sector pay cuts and redundancy plans, coupled with allegations of corruption, have stirred public anger. Regular protests have sometimes turned violent.

Slovenia bought some time in October, when it managed to issue its first sovereign bond in 19 months at a yield of 5.7 percent, averting a bailout for at least six months.

But it will need to borrow another two to three billion euros this year to repay the maturing debt and cover a budget shortfall seen at about 3 percent of gross domestic product (GDP), down from 4.2 percent last year.

Slovenian 5-year credit default swaps rose by 4.41 percent to 269.3 basis points on Thursday, gaining 11 percent over the past week, according to Markit data.

The yield demanded for Slovenia's 10-year bond reached 5 percent on Thursday, slightly down from a day before, Reuters data showed. (Reporting by Marja Novak; Editing by Matt Robinson and Andrew Roche)