UPDATE 2-Polish ruling party replaces PM ahead of elections

* Finance Minister Morawiecki replaces PM Beata Szydlo

* Szydlo has been PM for two years

* Economic policy expected unchanged (Adds quotes, context)

WARSAW, Dec 7 (Reuters) - Poland's ruling conservatives named in an expected move Finance Minister Mateusz Morawiecki as the country's new prime minister on Thursday as they gear up for a series of elections in the coming years.

Morawiecki, who has also been a deputy prime minister, will replace the largely popular Beata Szydlo, marking the midpoint of the parliamentary term and in what is the beginning of an expected broader government reshuffle.

Sources told Reuters this week that Morawiecki, 49, was the most likely candidate to replace Szydlo, 54, to prepare the party - led by Jaroslaw Kaczynski, Poland's paramount politician - for elections due in the next three years.

Local elections will be held in 2018, parliamentary in 2019 and presidential in 2020.

Morawiecki, an ex-banker, is broadly favored by Kaczynski, while Szydlo lacked the full trust of the party's chairman, analysts say.

"It is obvious that Jaroslaw Kaczynski is the leader of this camp and he is the one who distributes the cards regardless of who is the prime minister," Henryk Domanski, from the Polish Academy of Sciences, said.

Dramatic changes in Poland's economic policy are not expected with observers saying Morawiecki will keep strict control over Poland's finances and economy. Local market reaction has been muted this week amid speculation about his new role.

But it remains to be seen whether Poland, once a champion of democratic changes after the fall of Communism and now at loggerheads with the European Union over sweeping changes to state institutions, which critics say have subverted democracy and the rule of law, will change its relations with Brussels.

Three sources told Reuters on Thursday that Foreign Minister Witold Waszczykowski may be replaced with Krzysztof Szczerski, a top adviser to President Andrzej Duda, who wants to have a greater say on Poland's foreign policy.

The parliament is to vote on a new government at its next session on Tuesday and any ministerial changes are expected to be announced after that.

Despite the criticism from abroad, Szydlo's eurosceptic government, in power for two years, was one of the most popular in Poland since the 1989 collapse of communism, largely due to low unemployment, increases in public spending and a focus on traditional Catholic values in public life.

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Earlier in the day, the lower house of parliament rejected a vote of no confidence in the government, submitted by the opposition, and the visibly changed Szydlo was awarded with an enthusiastic round applause and flowers from her party.

"The last two years - it was an extraordinary time for me and the service to Poland and Poles was an honor," Szydlo said on Twitter after the decision of her replacement was announced in the evening.

Szydlo and Morawiecki have fought for months for control over the largest state-owned companies. The conflict became public this year during the selection process for the chief executive of PZU, central Europe’s biggest insurance company.

Analysts say that although the talk of the government reshuffle has been going on for weeks, the replacement of Szydlo, a loyal party member who made few mistakes, is surprising.

"The explanation may be that in the eyes of Jaroslaw Kaczynski, Beata Szydlo turned out to be too weak and that the government was seeded by internal conflicts and factional struggles," Domanski said.

"Beata Szydlo was a predictable politician and therefore there were fewer risks associated with her premiership." (Reporting by Pawel Sobczak; Writing by Lidia Kelly; Editing by Alison Williams and Toby Chopra)

12/07/2017 17:20

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