UPDATE 1-Spain's ruling PP retains poll lead but hung parliament looms

May 7, 2015 12:58 PM

* People's Party would win general election, socialists 2nd

* Leftist Podemos falls, centrist Ciudadanos rises

* Political fragmentation up at national, regional level (Adds details on regions, background)

By Julien Toyer

MADRID, May 7 (Reuters) - Spain's ruling People's Party (PP) is seen winning a year-end election with the socialists coming a close second, an opinion poll showed on Thursday, although the most disputed vote in 40 years is likely to lead to a hung parliament.

According to the survey, at least two parties - possibly three - would be needed to form a stable government in a country with little tradition of political alliances at a national level and many voters turning to burgeoning forces like Podemos and Ciudadanos campaigning against widespread corruption and high unemployment.

The trend is even clearer at a regional level. Elections are due later this month in 13 of Spain's 17 autonomous communities and all but one seems set to deny a majority to the main parties.

The PP of Prime Minister Mariano Rajoy, who is largely counting on a recovering economy to secure a second term, would win 25.6 percent of the national vote if the election was held today, the poll showed.

The socialist party (PSOE) would get 24.3 percent, stealing the second seat from leftist newcomer Podemos, which falls to 16.5 percent from 23.9 percent in January although it managed to keep up its momentum in key regions and town halls.

Another smaller rising force, Ciudadanos, would come fourth with 13.8 percent, up sharply from 3.1 percent three months ago, and emerging as a potential local and national king-maker on a message of moderate change that appeals to both centre-right and centre-left voters.

"The rise of Ciudadanos is huge," said party leader Albert Rivera. "We hope to compete head-to-head with the PP and the PSOE and even overtake them in some places."

The party's push was especially strong in the Valencia and Madrid regions, where the PP has governed for two decades and could now lose, boding ill for its national ambitions.

Meanwhile, in Andalusia, where elections took place in March, the hopes of socialist winner Susana Diaz to form a government faded this week as neither the PP nor Ciudadanos and Podemos agreed to abstain in the inaugural vote.