* No clear candidate for PM after Safadi withdrawal
* New cabinet needed to enact urgent reforms
* Banks could re-open as early as Monday
BEIRUT, Nov 17 (Reuters) - Lebanon slipped deeper into political crisis on Sunday after the withdrawal of a top candidate for prime minister narrowed the chances of creating a government needed to enact urgent reforms.
Mohammad Safadi, a former finance minister, withdrew his candidacy late on Saturday, saying it was too difficult to form a “harmonious” government with broad political support.
Safadi was the first candidate who had appeared to win some consensus among Lebanon’s fractious sectarian-based parties since Hariri quit as prime minister on Oct. 29, pushed out by sweeping protests against the ruling elite.
Faced by the worst financial strains since its 1975-1990 civil war, Lebanon has pledged to carry out urgent reforms it hopes will convince donors to disburse some $11 billion pledged at a conference last year.
The unrest has kept banks shut for most of the last month. They have imposed controls on transfers abroad and U.S. dollar withdrawals, and the pegged Lebanese pound is under pressure on an informal market.
Safadi became the presumed front-runner for prime minister after a meeting between Hariri, a Sunni politician, and Shi’ite groups Hezbollah and Amal, according to political sources and Lebanese media, but no political force later endorsed him.
Lebanon’s prime minister must be a Sunni Muslim, according to its sectarian power-sharing system.
Protesters who have filled Lebanon’s streets since Oct. 17 denounced the choice of Safadi, a prominent businessman and longtime politician they said was part of the elite they sought to oust.
“We are in a deadlock now. I don’t know when it will move again. It is not easy,” said a senior political source. “The financial situation doesn’t tolerate any delay.”
A second political source described efforts to form a new government as “back to square one.”
Safadi’s withdrawal leaves the powerful, Iran-backed Hezbollah and its allies with even fewer options unless they push for a close Sunni ally, a scenario that would likely reduce the chances of Lebanon winning international support.
Hezbollah is classified as a terrorist group by the United States.
Hezbollah and Amal, along with President Michel Aoun, a Maronite Christian, have sought for Hariri to return as premier but have demanded the inclusion of both technocrats and politicians in the new cabinet.
But Hariri, who is aligned with Gulf Arab states and the West, has said he will only return as prime minister if he is able to form a cabinet composed entirely of specialists capable of attracting the international support.
Global ratings agency S&P flashed the latest warning on Lebanon’s debt-saddled economy on Friday, lowering its foreign and local currency sovereign credit ratings deeper into junk territory to ‘CCC/C’ from ‘B-/B’.
S&P cited rising pressure on central bank foreign currency reserves and diminished depositor confidence brought on by the bank closures and reported restrictions on hard currency movement.
Lebanon’s bank staff union said it would meet on Sunday or Monday to decide whether to call off a strike after receiving a security plan to keep branches safe and potentially re-open banks as early as Monday.
Reporting by Tom Perry and Laila Bassam; writing by Eric Knecht; editing by Philippa Fletcher