By Tim Cocks

NAIROBI, Jan 15 (Reuters) - Western countries pressing Kenyan President Mwai Kibaki and the opposition to start talks and end weeks of chaos over a disputed election are likely to have limited influence because the West has little leverage.

Violence erupted across Kenya two weeks ago, when Kibaki was sworn in after a Dec. 27 presidential election that challenger Raila Odinga says was rigged. Donors are threatening to take tough action unless Kibaki and Odinga open dialogue.

And Kenya, in comparison to neighbours who get half their budgets from foreign donors, funds all but 5 percent of its budget from its own revenues.

With Western aid mostly focused on grassroots projects and an expansionist China ready to plug gaps left by sanctions, threats against Kibaki's government will be largely symbolic.

"Their leverage is restricted," said Ian Taylor, a professor of international relations at Britain's St. Andrews University.

"Policy makers are not going to just pull the plug when the Chinese are playing a bigger role and can provide an alternative source of investment and political support."

Post-poll turmoil has killed at least 612 people, hurt Kenya's image as a stable country in a troubled region, cost the economy millions of dollars and dismayed foreign donors.

After praising a peaceful polling day, international observers condemned "serious irregularities" in the counting, which included blocking their access to tally centres and high turnouts in Kibaki's core constituencies.

Odinga -- whose party kicked out most of Kibaki's cabinet and won 99 seats in parliament against the president's 43 -- was ahead until the last day, when several returning officers went missing while tallying results from Kibaki strongholds.

Diplomats say such misdeeds may have tipped the balance, although Odinga's people also stuffed ballot boxes in his strongholds and threatened rival agents.

His supporters have since been accused of stirring up ethnic violence in parts of the country but diplomats say they there is little they can do to force Odinga to call off further protests starting Wednesday, as he does not have much to lose.

"VEILED THREAT"

Analysts say Kibaki is hoping to ride out the crisis.

"Kibaki ... speculates that in the end this will be business as usual and the donors will shrug and say 'oh well'," said Richard Dowden of the London-based Royal Africa Society.

"If they (donors) did that, they'd be making a huge mistake."

Former U.N. head Kofi Annan was due to fly into Nairobi on Tuesday at the head of a group of "Eminent Africans" to try and host crisis talks between Kibaki and Odinga, after African Union head and Ghanaian President John Kufuor failed to broker a deal.

In the most tangible threat from the West since the crisis started, the European Union said on Monday it might cut aid to Kenya. The United States warned that it "cannot conduct business as usual in Kenya," unless both sides hold meaningful talks.

"Of course there was ... a veiled threat of international action. We already plan to keep formal ... diplomatic contacts with senior officials to a minimum," said a Western diplomat.

This has angered Kibaki hardliners, who accuse Britain and other Western powers of neo-imperialism.

"We do not need foreigners to tell us what to do," Roads Minister John Michuki was quoted on Monday as saying.

Donors are coy about what "action" might entail.

"There are measures that might be effected by a failure to communicate ... A lot of money comes into Kenya -- investment, tourism, remittances," said U.S. embassy spokesman T.J. Dowling.

SANCTIONS UNLIKELY

Punitive actions risk pushing Kenya into the open arms of a resource-hungry China vigorously courting Africa, analysts say.

China's official People's Daily made a provocative remark on Monday blaming Kenya's troubles on Western colonialism -- a common refrain among many Africans resentful at what they view as a patronizing and paternalistic attitude from the West.

Unlike oil-rich Sudan or diamond-producing Zimbabwe, Kenya doesn't have raw materials but is "a gateway to central Africa," says James Shikwati of the Inter Region Economic Network.

Aid cuts are also problematic because Kenya does not need or get much budget support.

"Most of the aid goes directly to projects," said Tom Cargil of UK think-tank Chatham House. "Cutting that would negatively affect ordinary people ... not the government."

The other option is economic sanctions but these would again hurt Kenya's populace more than the political elite, although diplomats say they may be willing to issue travel bans -- which have been laughed at by a number of those targeted.

(Editing by Bryson Hull and Giles Elgood)

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