NEW DELHI – Manmohan Singh will be sworn in for a second term as Indian prime minister on Friday after a key southern ally said it would leave the ruling alliance due to a row over ministerial positions.

The Congress-led coalition won a clear victory in the general election and has raised hopes of greater economic reforms.

The regional Dravida Munnetra Kazhagam (DMK) party from southern Tamil Nadu state said it would offer its 18 lawmakers only as outside support to the coalition, potentially weakening the government's ability to pass bills in parliament.

Singh's Congress party, which heads the coalition, will likely retain key ministerial portfolios such as finance but several of its allies were also demanding important portfolios, causing disagreements.

The Congress party says it had the support of 274 lawmakers before the DMK exit, two more than needed for a parliamentary majority, and was preparing for the swearing-in ceremony.

We have support of 322 parliamentarians and we are not worried about falling short at all, Janardhan Dwivedi, a senior Congress leader, said.

A soft-spoken economist, 76-year-old Singh will be sworn in by President Pratibha Patil around 5:30 p.m.

The Indian stockmarket surged earlier this week as investors welcomed Singh's strong mandate, which raised expectations for aggressive economic reforms at a time when growth in Asia's third largest economy has slowed to 6.5 percent.

Unfettered by their former leftist allies, Congress is expected to push reforms such as raising the foreign investment limit in insurance and opening up the pension sector.

Besides the slowdown, Singh's second term will face an array of challenges such as fraught relations with old rival Pakistan after the Mumbai attacks and a potential showdown with wealthier countries at the Doha world trade talks. [nDEL464492]

In a possible reshuffle within Congress, foreign minister and party stalwart Pranab Mukherjee may again take over the finance ministry portfolio, a post he held in the 1980s.

The Science and Technology minister Kapil Sibal has been tipped by some media reports to assume Mukherjee's post, while the home minister P. Chidambaram, who took over after the Mumbai attacks, will likely stay in his post.