* If PM stood down, new coalition could tackle crisis
* Coalition would end policy-blocking parliament deadlock
* Kan already deeply unpopular before quake, nuclear crisis
TOKYO, April 11 (Reuters) - Japan's ruling party fared badly in weekend local elections after Prime Minister Naoto Kan came under fire for his handling of the nuclear crisis, bolstering rivals who want him to quit once the crisis ends.
The unpopular Kan was already under pressure to step down before a massive earthquake and tsunami struck on March 11, leaving his government to cope with the worst crisis to hit Japan since World War Two.
Kan is unlikely to be forced out while experts struggle to regain control of a crippled nuclear power plant north of Tokyo, in the world's biggest nuclear crisis since Chernobyl.
But if he then stood down, it would be easier for his Democratic Party of Japan to form a "grand coalition" with the main opposition Liberal Democratic Party (LDP), an outcome many voters favour as a way of dealing with the tens of thousands left homeless, the reeling economy and the nuclear crisis.
The DPJ lost nearly 70 seats in Sunday's election for prefectural assemblies, Kyodo news agency said early on Monday. The DPJ also lost to the LDP in three gubernatorial elections in which it either fielded or supported a challenger.
The DPJ's No.2 official, Katsuya Okada, told reporters that a grand coalition with the LDP was a possibility, but that the idea would need support from voters.
"What's most important is to think about what's best for the people as we try to deal with the huge disaster," he said.
The LDP's No.2, Nobuteru Ishihara, said the trust needed for cooperation between two parties was lacking.
"The election results show that voters are asking, can we allow the Kan government to handle the situation?" he said.
Observers had expected the Democratic Party to lose seats, and had said a heavy loss was likely to be blamed on Kan.
Even before the March 11 earthquake, Kan's own voter support had slumped to around 20 percent and his grip on power weakened because of policy changes and perceived clumsiness in diplomatic rows with China and Russia.
His ratings have risen to around 30 percent since March 11 but a majority of voters are unhappy with his handling of the nuclear crisis, in which releases of radioactive material into the air and sea have alarmed Japanese citizens and neighbouring countries.
Analysts say Kan is unlikely to be forced out during the nuclear crisis, which could last months as engineers struggle to restore the cooling systems of the crippled nuclear reactors at the Fukushima Daiichi plant in the northeast.
Kan's Democrats have a big majority in parliament's lower house but need opposition help in the upper chamber. Before the crisis, opposition parties in the upper house were blocking budget bills to try to force a snap election.
Kan's eventual resignation could clear the way for a rejigged ruling coalition, and that would break a parliamentary deadlock that has kept Japan from crafting policies to address the country's most profound problems -- a fast-ageing society and huge public debt. (Reporting by Chisa Fujioka, editing by Tim Pearce)