Kenya's president and future prime minister said on Sunday they had made "substantial progress" at talks to end an impasse over a power-sharing cabinet and expected to clinch a deal the next day.

The cabinet is the key element of a deal brokered in February to end the east African nation's bloodiest political crisis, a post-election spasm of rioting and ethnic slaughter that killed at least 1,200 people and displaced 300,000.

"We have had a lengthy consultation throughout the day on the formation of a grand coalition government. In this regard we have made substantial progress," President Mwai Kibaki and opposition leader Raila Odinga said in a joint statement.

The two sides had planned to name the cabinet on Sunday, but disagreement over the division of ministries scuttled that plan and forced the two leaders to hold the last-minute meeting.

"We appeal to all Kenyans to be patient and assure them that we expect to successfully conclude the consultations tomorrow," said the statement, issued after talks adjourned for the night.

The two leaders have been under heavy local and international pressure to break a month-long deadlock over the cabinet. On Thursday they said they had agreed on how to share 40 ministerial jobs and pledged to name the cabinet on Sunday.

But bickering broke out immediately, and on Saturday the two sides said the cabinet naming would be delayed.

Kibaki in early January had named a half-cabinet that is still in place and the opposition rejected his first offer to take the remaining ministries in a unity government.

HOLD UP OVER DOCKETS

Sources on both sides said the bulk of disagreement at Sunday's talks was over a few ministerial dockets. Each side will get 20. One post not in dispute is finance, which means current Finance Minister Amos Kimunya is likely to keep his job.

The fury over Kibaki's contested victory eroded Kenya's image as a stable, prosperous country and hurt its economy, currency and stock market.

The anticipation of peace saw markets rally: the shilling currency has rebounded to levels not seen since the disputed December 27 vote. It has been especially sensitive to the fortunes of the political deal-making, and the market was expected to be active on Monday.

The inflated cabinet - 40 compared with 32 previously and the biggest since independence from Britain in 1963 - has angered civil society groups and many Kenyans.

They view it as yet another case of the country's political elite enriching themselves from the public coffers.

By some estimates the cabinet will cost about $1 billion a year. That is nearly 5 percent of Kenya's 2006 gross domestic product of $21.2 billion, the latest reported by the World Bank.

The two former allies split in 2005 after Odinga, then in cabinet, led a move that defeated a Kibaki-backed constitution.

Their next task will be to draft a new one in the next year to address longstanding issues of land, power and tribalism that the election crisis revealed. Analysts say it will be hard, given the rift and distrust between the two men.