* Bouteflika suffered stroke early last year
* After ten years in power, succession still unclear
* Region unstable, elite seen avoiding upheaval
By Lamine Chikhi and Patrick Markey
ALGIERS/TUNIS, Jan 16 (Reuters) - Abdelaziz Bouteflika's return to Paris for hospital treatment has reignited speculation the president who oversaw Algeria's emergence from almost a decade of civil war may be unable to stand for reelection in three months' time.
Bouteflika, a Western ally against militant Islamists in North Africa who suffered a stroke last year, flew to France on Monday for what state news agency APS called a planned check-up, saying his condition was "progressively" improving.
To listen to his allies, there is no Plan B. His ruling FLN party says Bouteflika, 76, is their only candidate for April's presidential election, in which he would run for a fourth term and almost certainly win due to the nationalist party's dominant role.
"Bouteflika needs to finish the job, and even more important, he represents a factor of stability in a very unstable regional environment," a source in his inner circle told Reuters just before the president left for Paris, declining to be identified due to the sensitivity of the issue.
Any potential transition in the major North African energy supplier would come at a delicate time, with neighbouring Egypt and Libya deep in turmoil three years after "Arab Spring" revolts that ousted their long-term leaders.
Gauging Algeria's opaque politics is complicated, observers say, with a cadre of veteran FLN party leaders and army generals known as "Le Pouvoir" or "The Power" in French, ruling behind the scenes since 1962 independence from France.
But time is running short: Campaigning starts on Friday, and candidates must register for the April 16-17 election before a constitutional deadline in February.
The Algerian leader, who spent months in a French hospital before returning home in July, has been quiet and clues seeping out of the ruling elite and business and political circles provide conflicting accounts.
His political opponents say he is too ill to work. Late last year he was visibly tired, two senior security sources said, and his health had deteriorated. But soon afterwards, he was seen in a live appearance receiving his chief of staff.
The president's office said he is well enough to travel back to Algeria on Friday.
Should he step aside, a handover from Bouteflika, who befriended Cold War-era icons like Fidel Castro and Yasser Arafat over his long career, is likely to be well-managed, analysts say. The FLN party-military elite alliance has vested interests in avoiding instability, they say.
"Bouteflika will run for a fourth term, there is no doubt unless there is a big surprise at the very last minute. The official announcement is expected in the first week of February," the source close to the president said.
While the president is elected, a Bouteflika successor may be chosen through an internal tussle between his inner circle and the DRS military intelligence service, which has played a kingmaker role since the days of civil war in the 1990s.
Another source, from the business elite close to the government, who also asked not be identified, said Bouteflika plans to run and is expected to appoint two vice presidents, a position now being prepared, to help in his campaigning.
Analysts say some of that may be political positioning by Bouteflika's allies, to guarantee a strong hand in backroom negotiations with military rivals over any succession.
Already, Prime Minister Abdelmalek Sellal's name is touted as one potential vice president. A technocrat, Sellal managed most day-to-day governing in Bouteflika's absence last year and is seen by many as a possible "consensus" handover candidate.
Senate chairman Abdelkader Bensalah, former premier Mouloud Hamrouche and Ali Benflis, who is backed by some powerful factions in the FLN, are other names in the ring.
"A smooth transition is paramount," said Geoff Porter, director of North Africa Risk Consulting. "Although Algeria's political elite have their policy differences and back different candidates, they agree that the country cannot risk instability at this juncture."
After his return to Algeria following his stroke and Paris treatment, Bouteflika appeared only a few times in public during convalescence, meeting visiting dignitaries such as the French prime minister.
But in the last months of 2013, sources say, Bouteflika moved to solidify his influence by transferring key responsibilities away from the DRS intelligence, to weaken its position, and reshuffling the cabinet to shore up his allies.
Last week, two more top DRS generals -- in charge of domestic security and counter-terrorism -- and one colonel, were sacked, bringing the number of generals retired to four in less than a year, according to one security source.
Bouteflika's allies have also pushed for a constitutional amendment to create the position of vice president -- allowing Bouteflika associates to campaign for him in case he is too ill. His backers have a majority in the parliament, but it may be too late to get it drafted and passed.
Rumours are rife, but few details have emerged in Algeria or France about the president's health since he arrived at Val de Grace hospital on Monday. Algeria's presidency said it was for routine checks planned last year.
APS state news agency this week said announcing his Paris hospital visit: "The president's health is improving certainly and progressively."
Should Bouteflika become too ill to continue, the current chairman of senate, Bensalah, who heads the second ruling party RND, would take over for as long as 45 days until elections.
"It is ridiculous to speak about Bouteflika running for fourth term. The man is unable to rule, the man is ill, but his inner circle continue to say he can run," leader of the moderate Islamist party MSP, Abderazak Mokri said.
"If he was in Paris only for a checkup, why not do it here in Algeria?"
If Bouteflika steps down or can no longer run for election, the vast North African country is unlikely to slide into upheaval seen in Egypt, Libya or Tunisia, whose leaders were overthrown in 2011 over economic malaise and repression.
After years of centralized state control over the economy, analysts say Algeria is certainly in need of economic reforms, and riots and protests over housing, jobs and opportunities occasionally break out in different regions of the country.
But the 1990s war that killed 200,000 people left many Algerians wary of turmoil, and the OPEC country's huge foreign reserves handed Bouteflika enough of a financial cushion to sooth potential protests over living conditions and jobs.
Algeria's global security role remains key. After Bouteflika helped end the war with Islamist fighters, Algeria has evolved into a strong ally in Washington's campaign against al-Qaeda style militants in the Maghreb.
Foreign oil companies, critical of Algeria's contract terms, will watch also transition for better incentives, especially after the militant attack on the Amenas gas plant a year ago that killed 40 oil workers.
Bouteflika himself has said it was time over for the old-guard from the independence era, but any successor will likely represent stability rather than generational change, and be backed by the ruling party establishment.
"The coming months will see intense backroom dealing among political heavyweights and a flurry of candidatures from lesser known presidential contenders," Oxford Analytica said in a report after Bouteflika's hospitalisation.
"Any new president will probably represent superficial change, instead ensuring political and economic continuity."
Among those who could succeed Bouteflika and be seen as guardians of that continuity is premier Sellal, who is accepted by both Bouteflika's wing and military clans of the political elite, analysts say.
Senate head Bensalah may also be in the running, though if he takes over temporarily should Bouteflika be unable to govern, he will no longer be eligible for election.
Two other names are Hamrouche, a former premier who many see as an outsider and a reformer, and Benflis, who once ran against Bouteflika and who has strong backing from some influential factions within the ruling party.
Eurasia Group North Africa analyst Riccardo Fabiani said it may be too early to predict the outcome of the internal struggles within the rival factions of Algeria's elite, but no major policy shift should be expected for now.
"I imagine the next president will be someone close to the presidential faction but acceptable to the DRS," he said. "Although it is also possible that a relative political outcast - someone who has been on the margins of Algerian politics for the past 10-15 years - could become the next head of state." (Editing by Philippa Fletcher)
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