UPDATE 2-Swedish parties agree new government to end vote deadlock - Aftonbladet

Four Swedish parties have agreed on a deal to give Stefan Lofven a second term as prime minister, potentially ending months of political deadlock, the Aftonbladet newspaper reported on Friday, citing unnamed sources.

Lofven's Social Democrats, as well as the Centre, Liberal and Green parties, all declined to comment on the report. And a deal could still be blocked by each party's executive group, who have the final say - some Liberal and Centre lawmakers have expressed strong doubts about such a partnership.

But the report raised hopes of a breakthrough after September's inconclusive election left a hung parliament and a caretaker government forced to adminster a budget voted through parliament by the opposition.

It was not immediately clear whether the plan was for a coalition or for the Social Democrats to form a government with informal support from some or all of the others.

All the parties together would still control fewer than half of the seats in parliament, so would still have to rely on the support of the Social Democrats' allies in the Left Party, which also declined to comment.

A series of proposed alliances and unions have failed since the election. The political mathematics is complicated by the fact that all have promised not to work with the anti-immigration Sweden Democrats, a party with roots in the white-supremacist fringe and that holds the balance of power.

A deal with Lofven - and the Green Party - could face opposition from some Liberal and Centre lawmakers as it would mark the death of the four-party, centre-right Alliance, formed in 2004 to end the Social Democrat's century-long dominance of politics.

"There is a clear division in the Liberals in particular and also among the Centre Party," Nick Aylott, political scientist at Sodertorn University. "But I expect a deal to go through."

Aftonbladet said the deal included an agreement to reform the tightly regulated labour market and loosen rent regulations to ease a housing crisis, policies the centre-left Social Democrats have long opposed.

On the economy, the Centre and Liberal parties want free-market reforms and lower taxes, while the Social Democrats have generally advocated more spending on welfare and policies to even out wealth inequalities.

(Reporting by Stockholm Newsroom; editing by Niklas Pollard and Andrew Heavens)

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