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* Bouteflika recovering, talking daily
* Plans to reform constitution after election
* Sellal rejects worries over oil price drop
By Patrick Markey and Lamine Chikhi
ALGIERS, April 12 (Reuters) - Algerian President Abdelaziz Bouteflika is recovering steadily from a stroke last year, talks with his team every day, and is healthy enough to govern after the election on April 17, his chief ally said on Saturday.
Bouteflika, a 77-year-old veteran of Algeria's independence war, has no serious rivals for re-election in Thursday's ballot, but he has not campaigned himself and has only rarely spoken in public since his illness.
Questions about Bouteflika's health and Algeria's stability are key for Western governments, who see the North African state as a partner in the campaign against Islamist militancy in the Maghreb, and a stable supplier of gas for Europe.
Abdelmalek Sellal, who resigned as prime minister to campaign for Bouteflika, said the president planned constitutional reforms to strengthen democracy, with term limits for the president and wider powers for opposition parties if he wins.
"He has all the health he needs to carry out his responsibilities. I speak with him every day by telephone. He follows the campaign daily," Sellal said in an interview in Algiers after campaigning in the eastern city of Annaba.
"His voice is starting to return, and he needs some more days before he can walk well again," he said. "He is not sick, he is recovering."
Bouteflika, who spent three months in a Paris hospital last year, appeared on state television on Saturday with the Spanish foreign minister. Earlier this month, he appeared with U.S. Secretary of State John Kerry, who visited Algiers to discuss security cooperation.
With the support of the powerful Front de Liberation Nationale party (FLN), which has dominated Algerian politics since independence from France, most observers say Bouteflika faces little challenge from the five election rivals.
For opposition leaders, though, the re-election bid by an ailing leader is the last gasp of the old guard of FLN party elites and army generals who see themselves as the guardians of stability and have mostly resisted change.
Critics say Algeria needs hefty reforms to open up an economy heavily dependent on energy revenues and to attract more foreign investors, who are wary of the restrictions and bureaucracy of the largely state-controlled system.
Sellal said Bouteflika also planned more powers for the prime minister's post, and authority for opposition parties in parliament to make appeals to the Constitutional Council over legislation.
"We have problems with administration, bureaucracy, justice and corruption. We recognise this," he said.
Still, Bouteflika loyalists are quick to say they believe he delivered Algeria from the darker days of its 1990s war with Islamist militants, which killed around 200,000 people and left many Algerians deeply wary of instability.
It is a message that Bouteflika's allies drum home in their campaigning, pointing out how the region is still buffeted by turmoil from the 2011 Arab Spring revolts against long-standing leaders in Libya, Egypt and Tunisia.
"Algerians have a lot of confidence in Bouteflika," Sellal said. "They don't want to go into some unknown adventure, they know he is capable of leading. We think he will be well elected, and properly elected."
Algeria has mostly escaped unrest during the Arab Spring. In the 1980s, the FLN had already ended one-party rule, introducing a multi-party system that eventually allowed Islamists to come to the brink of winning power.
Fighting broke out when the state cancelled the election, forcing Islamists underground and into bloody confrontation. That experience left Algeria unlikely to witness any Arab Spring-style turmoil, Sellal said.
"That doesn't concern us, we fixed the problem in 1988," Sellal said. "Then, we had the 1990s with 200,000 deaths. All Algerians lived through that. I don't know what the Arab Spring means, it doesn't even cross my mind."
Observers say Algeria is still mostly being governed though behind-the-scenes manoeuvring between FLN clans and the military, an establishment known as "Le Pouvoir", French for "The Power", which has left little room for strong opposition.
Anti-government protests are still rare in Algeria, but the main rival opposition parties have joined forces to boycott Thursday's election, which they say is unfairly tilted in FLN's favour.
A small movement called Barakat or "Enough" has been staging weekly demonstrations in Algiers and in other cities against a fourth term for Bouteflika, but has drawn only small numbers.
More common are sporadic protests over high unemployment, housing, services and economic opportunities.
Wary of potential social unrest in 2011, Bouteflika hiked spending on subsidies, housing and credits and job creation programmes to ease tensions. With nearly $200 billion in reserves from energy income, Algeria still has a large financial cushion.
Bouteflika's opponents say subsidies are a short-term remedy that leave the country vulnerable to a sharp fall in oil and gas prices, especially if new bidding rounds fail to attract the foreign investment that is badly needed to revive stagnant output.
Sellal dismissed the idea that such a price fall could cause problems for Algeria.
"With the current levels of reserves, we think we could have four years without any problems," he said. "But we know the price of a barrel of oil is going to stay above $75 for the next few years." (Editing by Kevin Liffey)
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