By Lesley Wroughton
WASHINGTON (Reuters) - The International Monetary Fund's board on Monday blocked Bank of Israel governor Stanley Fischer from the race for the top IMF job, further boosting the chances of French Finance Minister Christine Lagarde.
In a surprise move, the 24-member IMF board rejected changing the IMF's rules that would have allowed 67-year-old Fischer to run, two board official told Reuters. IMF rules stipulate an age limit of 65 for an incoming managing director.
The officials said changing the rules for Fischer, who is highly respected by both advanced and emerging economies, would have required a reopening of the selection process to allow other candidates older than 65 to participate in the race.
An IMF board statement later confirmed it had shortlisted Lagarde and Mexico's central bank chief Agustin Carstens and would consider their nominations, although made no mention of Fischer.
"The executive board will meet with the candidates in Washington and, thereafter, meet to discuss the strengths of the candidates and make a selection," the board said.
It reiterated that it planned to complete the selection by June 30.
Front-runner Lagarde is backed by Europe, which holds one-third of the votes, and a handful of other countries including Indonesia, whose Finance Minister Angus Martowardojo said he personally supports her candidacy.
If she wins, Lagarde would become the first woman to head the IMF, which has been central in providing rescue loans to countries in crisis including Greece, Ireland and Portugal.
Carstens has the support of a dozen Latin American countries, including Colombia, in a race which, despite being one of the most hotly contested in IMF history, is widely expected to result in Europe maintaining its 65-year grip on the job.
Brazil, the region's largest economy, has not yet said whether it will back Carstens.
Carstens acknowledged on Monday that he was a long-shot candidate and he knew chances were "quite high" that Lagarde would get the job left vacant by Dominique Strauss-Kahn, who was arrested in New York in May on sexual assault charges. He has denied the charges.
The European debt crisis made it hard to break the tradition of Europe's grip on the fund, even though members agreed some time ago the next managing director should be selected on the basis of merit, Carstens told the Peterson Institute, a policy think tank in Washington.
"That makes it more difficult. I'm not fooling myself. It's like starting a soccer game with a 5-0 score," Carstens said after a meeting with U.S. Treasury Secretary Timothy Geithner.
In a statement, the U.S. Treasury Department said it had not yet endorsed a candidate, although it is widely expected that Washington will back Lagarde to head the global financial institution.
Fischer, who was born in what is now Zambia and carries both an American and Israeli passport, announced his last-minute candidacy over the weekend, saying he had been encouraged to enter by a number of governments. Applications were due by Friday.
Board officials told Reuters previously the IMF rules could easily be changed if there was enough support for Fischer.
With 17 percent of the vote, the United States is the key to who becomes the next IMF managing director. Fischer's late entry into the race on Friday complicated its decision because it would be hard-pressed not to vote for an American passport holder, according to financial diplomats.
By tradition, the United States has always supported Europe's candidate under a gentlemen's agreement that has seen a European head the IMF and an American lead its sister institution, the World Bank, since the end of World War Two.
Lagarde still faces tough questioning from emerging market economies when she is interviewed by the 24-member board, which is heavily represented by European countries.
Developing nations want their growing economic prowess reflected more in their clout at the IMF, which means she will need to undertake more ambitious reforms that boost the voting power of emerging economies.
In his appearance at the Peterson Institute, a Washington policy think tank, Carstens took a swipe at his French competitor saying as a European she may not be objective enough to deal with the unfolding European debt crisis.
He argued that his distance from the European crisis, as well as his experience in dealing with Latin American debt problems while working for the Mexican government and as an IMF deputy director, gave him an advantage over Lagarde.
"I think in the case of Europe what would help me is to have a fresher pair of eyes ... I think also someone coming from the outside would speak their mind more frankly and I think that would be an advantage," Carstens added.
(Additional reporting by Doug Palmer in Washington; Editing by Will Dunham and Eric Beech)