Spain's main political parties cancelled their closing campaign rallies, two days before an election, after a former councillor from the governing Socialist Party was shot dead in the Basque Country.

The government blamed ETA separatists for the killing of Isaias Carrasco, who was shot several times in front of his wife and young daughter outside his house in the town of Mondragon.

Whether Carrasco's murder would have any effect on the outcome of Sunday's election, in which the Socialists are favourites, was not immediately clear.

In 2004, Socialist Party leader Jose Luis Rodriguez Zapatero became prime minister as a result of a surprise election victory three days after an attack by Islamist militants who killed 191 people by bombing Madrid trains.

Both the Socialist Party and the opposition Popular Party cancelled rallies scheduled for Friday, the last day campaigning is allowed.

"Spanish democracy will not accept challenges from people opposed to its basic principles," Zapatero told a news conference in which he blamed ETA for the killing.

"The people who have taken part in this murder will be arrested and tried," said the prime minister, who was told of the killing while waving to followers at a campaign rally in the Andalusian city of Malaga. Television images showed him turn stony faced after a senior official spoke in his ear.

Zapatero broke off peace talks with ETA in December 2006 after they killed two people with a car bomb. His Socialist party leads the conservative Popular Party in opinion polls.

He has led a crackdown on ETA, but the Popular Party has accused him of being soft on the Basque separatists in the past.

"This is a day of mourning. We should all stand by the family of Isaias Carrasco and remain united, united against ETA," said Popular Party candidate Mariano Rajoy.

Julian Santamaria, a politics professor at Madrid's Complutense University, did not think the killing would alter voting intentions.

"It might mean more people get out and vote on Sunday," he told Reuters.

Leftist voters are historically more prone to abstention than conservatives, and Zapatero's surprise victory in 2004 was due partly to an unusually high turnout by young voters angered by the then PP government's blaming the train bombings on ETA.

ETA has killed more than 800 people in four decades in its fight for independence of the Basque Country, in northern Spain and southern France, even though polls show most Basques do not want this.

A neighbour described how he was awoken by the shots.

"I could see him (Carrasco) lying on the ground and his wife and daughter were just shouting 'What's going on? They shot my father three times," Enrique Balmedo, 26, told Reuters by telephone.

Until now, the issue of Basque separatism had played a relatively minor part in the elections, which have been dominated by debate over the slowing economy and immigration.

The Popular Party, founded by supporters of former dictator Francisco Franco, was 4 percentage points behind the Socialists on Monday before a pre-electoral ban on publishing opinion polls came into force.

Zapatero hopes his socially liberal policies, such as legalising gay marriage and making divorce easier, will bring young voters to the polls despite signs that a decade-long boom fuelled by rising house prices and readily available credit may be ending.

House prices have fallen by 3.5 per cent in nominal terms from their peak in July, after tripling in 10 years. Unemployment has risen by almost 10 per cent in a year to 2.3 million.

The Socialists hope higher infrastructure spending and a 400 euro tax rebate will help keep the economy growing at 3 percent a year and create jobs for idle construction workers.

The Popular Party wants cuts in taxes on salaries and companies and tighter immigration controls to reduce the strain on public services.
Reuters