If the self-styled moderate nationalist pulls off the switch to head Yugoslavia's dominant republic, it will set up a power battle among the political forces which united to oust Slobodan Milosevic two years ago after a decade of Balkan conflicts.

Kostunica has criticised quick pro-market reforms undertaken by the Serbian government of his arch-rival Zoran Djindjic. He has vowed to push for an early general election and a more cautious economic policy.

Kostunica won 31.2 percent of the first round vote, according to a projection by a reliable Belgrade-based monitoring agency. He will face off against Yugoslav Deputy Prime Minister Miroljub Labus, who scored 27.7 percent.

Ultra-nationalist Vojislav Seselj -- backed by Milosevic from the cells of the U.N. war crimes tribunal in The Hague -- scored a better-than-predicted 22.5 percent, according to the projection by the Centre for Free Elections and Democracy.

In a remark likely to enrage the free-marketeers admired by Western officials, Kostunica declared both Labus and Seselj were "extremists" in their own way. He accused Labus of uncritically accepting the demands of international financial institutions.

"We have to take into account the country's social situation in order to ensure the people's survival," Kostunica declared at his campaign headquarters in the early hours of Monday. "Not taking this into account represents an extreme position."

Serbia's current president Milan Milutinovic, a last remnant of the Milosevic era, completes his five-year term at the end of the year. He is expected to join his former boss at the U.N. war crimes court on charges of atrocities committed in Kosovo.

HOT FAVOURITE

Analysts said Kostunica, 58, was now the hot favourite as most other first round candidates were nationalists of various hues. Their supporters are far more likely to switch to Kostunica than the liberal, strongly pro-Western Labus.

One possible spanner in the works for Kostunica is a requirement that turnout must be more than 50 percent for the second round to be valid. A presidential election five years ago failed to overcome this barrier and had to be repeated.

Kostunica is looking for a new job as his current post will cease to exist soon, when the Yugoslav federation is revamped as a looser union between its two republics, Serbia and Montenegro.

Labus urged his supporters -- and people who abstained in the first round -- to turn out for the October 13 runoff.

HALF TIME

"The match isn't over yet. We are at half time now and the other candidate is less than 100,000 votes ahead," the 55-year-old told reporters at his headquarters.

"My message to the voters is that we mustn't stop, we have to get the job done," said Labus, who argues quick restructuring and privatisation of state industries are the best way to prosperity even if they cause short-term pain.

The reformist alliance which toppled Milosevic as Yugoslav president in a mass uprising in 2000 has split into two main factions -- one around the professorial Kostunica and the other led by the energetic Djindjic, who backed Labus's campaign.

Djindjic's supporters say they are the true reformers and Kostunica's camp may talk about reform a lot but does little. They see Kostunica as a respectable front-man for many of the same nationalists who backed Milosevic.

Kostunica's faction says the Djindjic camp has no respect for the law, alleging corruption and links to organised crime. It has tapped into discontent among many Serbs who had hoped to see economic benefits from Milosevic's downfall more quickly.

Around 55 percent of Serbia's 6.5 million-strong electorate took part in Sunday's vote, choosing between 11 candidates.

First official results were expected on Monday morning but the Belgrade agency's projections have proved very accurate. Sunday's was based on results from a representative sample of polling stations, with a margin of error of 0.4 percent.

(Additional reporting by Julijana Mojsilovic, Gordana Filipovic, Gordana Kukic and Beti Bilandzic in Belgrade and Fredrik Dahl in Pristina)

REUTERS

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