UPDATE 1-Spain's government reaches budget deal with junior ally Podemos

Spain's Socialists, who hold a minority in parliament and need the support of smaller parties to pass legislation, have reached a budget deal with anti-austerity party Podemos, paving the way for the current government to stay in power until mid-2020.

Prime Minister Pedro Sanchez had faced growing pressure from within his party to call an early election before scandals besetting his four-month-old government undermine a surge in voter support.

But the agreement, which includes raising the minimum wage, tax hikes and a reform of the rental market and is expected to be endorsed by other parties, now largely removes that risk. The next national election should take place by mid-2020.

The Socialists have just 84 seats in the 350-seat parliament and with backing from Podemos - bringing them to 151 votes - they must still enter in talks with parties in Catalonia and the Basque Country to reach the necessary majority.

The opposition conservative People's Party (PP) and Ciudadanos, which together hold 166 seats in the parliament, have said they would vote against the budget proposal.

The agreement includes raising the minimum wage to 900 euros ($1,039) a month from the current level of 735.90 euros. It also includes proposals to reform the housing rental market, a tax on financial transactions, a tax on digital services and tax hikes for those earning more than 130,000 euros a year.

Sanchez is riding high in the polls after his four-month stint as prime minister and is under pressure from within his party to consider an early election amid a slew of scandals that have prompted two ministers to step down and targeted others. ($1 = 0.8663 euros)