MADRID, March 4 (Reuters) - A decision to allow a Basque separatist to serve out a prison sentence under house arrest has drained support for Spain's government, with a majority thinking the Socialists caved in to ETA.

Two polls published on Sunday showed that 55-58 percent of Spaniards thought the government was blackmailed by ETA and Inaki De Juana Chaos, a convicted killer who was allowed home to the Basque Country to recover from a 115-day hunger strike.

ETA has waged a violent four-decade campaign for independence for the Basque Country, an area straddling the Spanish-French border.

The government on Thursday granted house arrest to De Juana, who had already served 18 years in prison for 25 ETA murders in the 1980s and had become something of an icon for separatists.

He went on hunger strike after being sentenced to another 12 years for threatening a judge and "praising terrorism" in a newspaper article.

Almost two-thirds of people polled by Metroscopia and Sigma Dos disagreed with the decision. The number dipped to around half if only Socialist voters were counted.

Hundreds of people have demonstrated outside government buildings at the decision to allow De Juana go home, a choice Madrid said was made partly on humanitarian grounds.

"It is not our fear or our weakness which saved him, it is our bravery and our responsibility," Prime Minister Jose Luis Rodriguez Zapatero said on Saturday.

"We decided to stop a man who killed 25 people from dying, a man who knows neither mercy nor repentance. We did it to prevent him from dying -- something that he surely cannot understand."

The Sigma Dos poll, carried out for centre-right newspaper El Mundo, showed 62 percent of Spaniards thought the De Juana case would hurt the Socialists at the ballot box.

Spain holds regional votes this year with general elections due in the next 12 months.

Last month, another poll showed terrorism was Spaniards' biggest worry after ETA bombed Madrid airport in December, killing two people. That survey showed the bombs had cut support for the Socialists to 38.8 percent from 39.3 percent in October.

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