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By C. Bryson Hull

NAIROBI, April 3 (Reuters) - Kenya's political rivals on Thursday said a power-sharing cabinet would be named this weekend, ending deadlock that had threatened the country's chances of peace and economic recovery.

President Mwai Kibaki and prime minister-designate Raila Odinga announced the agreement after a two-hour meeting over the size and membership of the cabinet, a key part of a deal to end Kenya's bloody post-election crisis.

"We've agreed to announce the cabinet on Sunday," opposition leader and future premier Raila Odinga told reporters after meeting Kibaki. he said it would be sworn in on April 12.

The two agreed to share power after Kibaki's disputed re-election spiralled into ethnic killings that killed more than 1,200 people and displaced over 300,000 in the east African country.

Kibaki's office said the cabinet would have 40 ministries. That compared to 32 in the previous government, the 44 that Kibaki's team had wanted and the 25 Odinga had argued for.

Spokesmen for the groups said that while the ministries each side will get had been decided, the list of ministers still had to be finalised by each side.

The breakthrough, which will see Odinga's Orange Democratic Movement (ODM) get about half the seats, came after a month of deadlock many feared could undo Kenya's recovery.

The shilling currency immediately strengthened by 1 percent to 62.25/35 to the dollar. There was no immediate reaction on the Nairobi Stock Exchange, but both markets have recouped losses since the deal was signed in February and dealers say they are watching closely for its successful consummation.

MINISTRIES SPLIT

The disagreements have been over the size of the cabinet, who gets what ministry and Kibaki's rejection of certain ODM politicians his backers blame for violent street protests and killings of people from his Kikuyu tribe in the Rift Valley.

The share flotation of top mobile phone operator Safaricom [SCOM.NR] -- the largest IPO ever in east Africa which started six days ago -- also became part of the cabinet wrangling.

On Wednesday, former U.N. chief Kofi Annan chided both men for the delay in implementing the agreement, which he brokered in February in hope of ending a political crisis that hurt one of Africa's brightest economies and beacons of stability.

Diplomats say both Odinga and Kibaki have been willing to make sacrifices to push the agreement forward, and Thursday's breakthrough came after face-to-face meetings between the once and future allies.

But the enlarged cabinet is sure to anger many of Kenya's 36 million people, long used to a political class that spares no expense on itself.

"It is ridiculous. It is too expensive. We shouldn't be coughing up all that money for politicians' comfort. It is the same old fellows; we expect nothing new from them," teacher Wenslaus Masinde told Reuters. (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com/ ) (Writing by Bryson Hull; Additional reporting by George Obulutsa and Duncan Miriri; Editing by Matthew Tostevin)

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