By Dmitry Solovyov

ALMATY, Oct 1 (Reuters) - Kyrgyzstan plans an election onOct. 10 that would create the first parliamentary democracy inCentral Asia in a year that has seen the president overthrownand the worst ethnic violence in the country's modern history.

Acting president Roza Otunbayeva, a former ambassador toLondon and Washington, must push through electoral reforms whiletensions simmer in the ethnically divided south, scene of savageclashes in June in which hundreds of people were killed.

Parts of the country's second city, Osh, are still in ruins.With the threat of violence high, the Organisation for Securityand Cooperation in Europe (OSCE) plans to send a 52-member,unarmed police force after the election.

Otunbayeva says she could cancel the poll and declare astate of emergency should violence erupt again.

The situation worries the United States and Soviet-eramaster Russia, both of which operate military air bases inKyrgyzstan.

Below is a list of key political risks in Kyrgyzstan.

BLOODSHED AND CHAOS

The violence began on June 10, triggered by attacks byunidentified individuals in balaclavas, and lasted several days.

Both Kyrgyz and Uzbeks, who have a roughly equal share ofthe population in the south, said they suffered sustainedattacks. Nearly 400 people were killed, and some unofficialestimates place the toll much higher.

Many victims were shot, but others, including women andchildren, were burned inside their homes. The United Nationsestimated that 400,000 people, mainly Uzbeks, fled at the heightof the violence, though most have since returned.

New York-based Human Rights Watch said some Kyrgyzgovernment troops took part in mob attacks against Uzbeks.

On Sept. 15, a court sentenced five people to life in jailfor murder and other charges and handed out long prison terms tothree others in the first trial after the unrest.

Human Rights Watch and Freedom House said the investigationhad been faulty, marred by violence and threats against thedefence. Those sentenced -- all ethnic Uzbeks -- included aprominent human rights defender. The vast majority of thosefacing trials are also ethnic Uzbeks.

Speaking at the United Nations, Uzbek President IslamKarimov called for an independent international probe into theJune violence, saying it could pave the way to reconciliation.

Kyrgyzstan had been volatile since a popular revolt on April7, when president Kurmanbek Bakiyev was overthrown and replacedby an interim government.

Two months of tension followed, marked by sporadic attemptsby supporters of Bakiyev to seize government buildings in thesouth. The interim government has blamed Bakiyev's supportersfor fomenting the violence, a charge that Bakiyev has denied.

Bakiyev is now exiled in Belarus, whose president, AlexanderLukashenko, has publicly snubbed requests for his extradition.

What to watch:

-- Revenge attacks are possible. There has been little signsof reconciliation between the ethnic groups and raids by Kyrgyzforces are likely to breed more resentment among Uzbeks.

-- OSCE monitors, originally scheduled to start arriving inAugust, will be deployed in the south after the election. Theirdeployment is designed to soothe tensions, but some residentssay it could embolden ethnic Uzbeks to pursue autonomy.

-- National Security Service chief Keneshbek Dushebayev hassaid international terrorist groups played a role in theviolence. Central Asia's proximity to Afghanistan has long bredfear Islamist militants may try to gain a foothold.

-- Kyrgyzstan's neighbour Tajikistan, the poorest ex-Sovietstate in the region, adds to regional tension. Battles haveraged between government forces and Islamist rebels and analystssay the violence could spill into Kyrgyzstan and Uzbekistan.

-- The vast majority of those facing trials after June'sbloodshed are ethnic Uzbeks. Human rights bodies say biasedtrials may fuel further tension in the south.

POLITICAL REFORM

More than 90 percent of voters in a June 27 referendumsupported Otunbayeva's plans for parliamentary democracy, wherethe prime minister will have more power than the president.

Under the new charter, Otunbayeva will be acting presidentuntil Dec. 31, 2011. Parliamentary elections will take placeevery five years. No political party will be allowed more than65 of the 120 parliamentary seats.

The president will be limited to a single six-year term,with greatly reduced powers, in contrast to the authoritarianrule in the other four former Soviet states in Central Asia.

Russia, which sees Kyrgyzstan as part of its sphere ofinfluence, has strongly criticised Bishkek's plans to build aparliamentary republic as it believes this could lead tofactionalism or even a power grab by Islamist extremists.

President Dmitry Medvedev said on Sept. 10 that attemptssuch as that by Kyrgyzstan's leaders to create a parliamentarydemocracy would end in tears, and said he was afraid that in theend it would be a "catastrophe" for Kyrgyzstan.

Analysts say Russia would also find it more difficult toexert its influence on a democratic Kyrgyzstan than to deal witha powerful president similar to those elsewhere in Central Asia. What to watch:

-- The ability of the interim government to organise freeand fair elections. Diplomats say the new leaders will face anuphill battle fostering democracy while infighting could stifletheir ability to make quick decisions.

The OSCE's election monitoring arm said the referendum wasfair, but improvements in the electoral process -- bettersafeguards against multiple voting, for example -- are needed.

-- Will ethnic Uzbeks gain representation in government? Theconstitution forbids any political party created on ethnic orreligious grounds, but the large Uzbek population in the southwill need a presence in a representative government.

SUPERPOWER POLITICS

The United States and Russia are at loggerheads overKyrgyzstan, although their leaders do not publicly say so.

Washington's priority is the Manas transit base, animportant centre for supplying the war in Afghanistan. Russia,which has long dreamed of evicting the United States fromCentral Asia, also leases a local base, in Kant.

Wrangling began under Bakiyev, whose decision in 2009 toextend the Manas lease -- months after announcing the U.S.military would have to leave -- infuriated the Kremlin. Someanalysts say this was a factor in his overthrow.

Bishkek is keen for Russia to merge the four militaryfacilities it rents in various parts of Kyrgyzstan into a singlebase, and is eager to boost the rent that Moscow must pay.

Moscow and Washington offered quick support for Otunbayeva'sinterim government immediately after it came to power.

U.S. President Barack Obama met Otunbayeva in New York and,while praising her government for removing restrictions onindependent media and drafting a new constitution, urged her totake more steps to prevent a renewal of ethnic violence.

What to watch:

-- Will the lease on Manas be renewed? A decision willprobably not be taken until after the general election.

-- Will Russia use Kyrgyzstan's volatility as an excuse tobeef up its military presence? It has shown little desire to actunilaterally, although it has said its troops will remain in thecountry at least until the elections.

-- How will China, which shares a border with Kyrgyzstan,react? China covets its iron ore, gold and coal mines and hasstrong interests in textiles and agriculture.

ECONOMY AND INVESTMENT

Kyrgyzstan secured pledges worth $1.1 billion on July 27from several international donors, including the World Bank, theAsian Development Bank and the European Commission.

The money will be used to rebuild the south and reignite theeconomy, which the government expects to shrink by 5 percentthis year compared with a growth forecast of 5.5 percent priorto the turmoil that began with the president's overthrow.

Kyrgyzstan's external debt amounts to 61 percent of grossdomestic product and the government says its budget deficit thisyear is equivalent to 13.5 percent of GDP.

The economy is dependent on remittances from citizensworking abroad, mostly in Russia, which comprise as much as 40percent of GDP.

Mining is the other main earner: the Kumtor gold mine,operated by Canada's Centerra Gold, alone accounts for more than7 percent of GDP and supplied a quarter of industrial output anda third of all exports last year.

What to watch:

-- Will the country's future leadership be immune to thenepotism and cronyism which sparked the popular indignation thattoppled the previous president? (Editing by Sonya Hepinstall)