UPDATE 1-Spanish jobless rate close to six-year low as tourism booms

* Rate falls to 20 pct in Q2 vs 21 pct in Q1

* Seasonal hiring helps job creation

* Political deadlock stalling labour reforms (Recasts to focus on tourism industry, reforms, adds details)

MADRID, July 28 (Reuters) - Spain’s unemployment rate fell to its lowest in nearly six years in the second quarter, fuelled by a tourism boom and underpinned by three years of solid economic growth.

But much of the jobs recovery has been built on short-term contracts, emphasising the need for labour reforms that have been delayed by a seven-month political stalemate.

The jobless rate fell to 20 percent of the workforce in the April to June period, the National Statistics’ Institute (INE) said on Thursday, its lowest level since the third quarter of 2010 and down from 21 percent in the previous quarter.

Job creation in the services sector in particular rose sharply.

The overall number of unemployed stood at 4.57 million in the second quarter, INE said, a low not reached since the end of 2009.

The economic recovery, following a deep recession that wiped out millions of jobs, has driven a steady turnaround in the labour market, though Spain’s unemployment rate remains the second-highest in Europe after Greece.

A buoyant tourism industry has helped jobs return, as restaurants, hotels and resorts take on extra staff. Visitors have flocked to Spain in preference to many Mediterranean destinations further east, where security concerns have become increasingly acute.


But Spain’s labour market still relies more heavily than many across Europe on short-term contracts, storing up problems for the economy at a time of political deadlock following two inconclusive parliamentary elections.

Spanish parties have been unable to agree on a new government since a December ballot that delivered a hung parliament, with a re-run in June producing a similar result.

High unemployment, the abundance of seasonal work and of jobs in lower-paid, low-skilled sectors have sapped contributions to Spain’s social security system, leaving it short of revenues to foot payouts on pensions.

The welfare shortfall has scuppered efforts to tackle an excessive public deficit, pushing the European Commission to grant Spain a further two-year extension to bring it under a recommended threshold of 3 percent.

Political leaders jockeying for power have pushed for a further crackdown on abusive temporary contracts and reforms to improve workforce training, while many agree that the social security pot’s funding model needs an overhaul.

But in the absence of a government, those reforms are on the backburner, at a time when they may be more urgently required than ever after Britain’s vote to leave the European Union, some analysts argue.

Britain has been a key destination for young Spaniards seeking jobs unavailable at home, said Raj Badiani, senior economist at IHS Global Insight.

“The Spanish economy will require better performing and less segregated labour markets to absorb more stay-at-home young workers,” Badiani said in a note.

The latest unemployment reading beat forecasts of 20.4 percent rate in a Reuters poll.

The annualised pace of job creation showed some sign of slowing in the second quarter, however, growing 2.43 percent compared with 3.29 percent a quarter earlier. (editing by John Stonestreet)