* PM Julia Gillard under pressure after court rejects asylum-seeker plan
* Reports say some ruling Labor MPs losing faith in PM
* Some papers suggest ex-PM Kevin Rudd could be drafted back
* Defence Minister Stephen Smith also touted as future leader (Adds betting odds, quote)
By James Grubel
CANBERRA, Sept 2 (Reuters) - Australian Prime Minister Julia Gillard vowed on Friday to battle on as leader of her unpopular government, dismissing media reports that some of her own lawmakers had lost faith in her after a fresh policy setback this week.
Gillard, her face pale and drawn after what is emerging as one of her worst weeks in politics, appeared in a TV interview to fend off leadership speculation after a court on Wednesday rejected her plan to send asylum-seekers to Malaysia.
“I’m not going anywhere. I have too much to do,” Gillard told Sky TV, barely a year after the ruling Labor Party had sacked her predecessor, Kevin Rudd, in a late-night coup.
Asked if she had been approached about stepping down, she replied: “No”.
The media reports of growing discontent over Gillard, whose opinion poll ratings are now worse than when she toppled Rudd, prompted senior government lawmakers to come out publicly on Friday in support of their embattled prime minister.
The reports also became a talking point in financial markets where investors are turning their mind to an eventual change of government, wondering about the implications for planned taxes on carbon emissions and iron ore and coal mining profits, as well as a $38 billion national broadband project.
“The government has clearly had some unpopular policies and there is a general view that maybe either a change in prime minister or government would be viewed as a positive thing,” said Su-Lin Ong, senior economist with RBC Capital Markets.
“It could be modestly positive for the Aussie (dollar).”
Bookmakers Centrebet said the odds of an early election in 2012 had shortened over the past week, while a conservative opposition victory at the next election would pay A$1.23 for a A$1 bet, compared to A$4.00 for a Labor victory.
At the same time, the odds on Gillard remaining prime minister until the next election had lengthened over the past week from A$1.60 to A$2.
Newspapers had reported that senior government figures felt she had lost her authority after the High Court ruled as invalid Gillard’s attempt to neutralise the politically damaging issue of asylum-seekers by sending them to Malaysia.
Opinion polls show Gillard and Labor, which relies on independent and Green MPs to stay in power, would easily lose office if an election were held now.
However, the next election is not due for another two years and Gillard’s independent and Green supporters are showing no sign of abandoning her government.
Gillard’s minority government relies on three independents and a Green for its one-seat majority. But their support could no longer be guaranteed if Gillard were to be replaced, meaning a change of leader could end Labor’s hold on power.
One of the independents, Tony Windsor, said on Friday that Gillard was doing a good job in parliament at a difficult time.
Melbourne’s Herald Sun newspaper said some Labor figures, who were not named, were suggesting former prime minister Rudd could be drafted back to the leadership, with Defence Minister Stephen Smith as his deputy.
Under the headline “Tick, Tick, Tick”, suggesting time was running out for Gillard, the paper said other Labor figures believed Smith could be the next leader.
The Australian newspaper on Friday said factional leaders were not contemplating a leadership change, although some wanted a cabinet reshuffle to help lift government support.
Both the Herald Sun and The Australian belong to media group News Corp, which government and Greens politicians have accused of running campaigns against government policies.
The Australian Financial Review said former Queensland state premier Peter Beattie was considering running for a seat in national parliament to try to help lift Labor’s support in his state, where polls show government backing to be a record low 23 percent and where the party could lose all but one seat.
Beattie on Friday said he was happy to be retired from politics, and urged his party to hold its nerve and support Gillard’s ongoing leadership.
“To change leaders at this point in time would basically destroy the Labor Party government. This is a time to hold your nerve, and not to change leader,” Beattie said.
Trade Minister Craig Emerson also strongly supported Gillard on Friday, despite the government’s policy on asylum-seekers being in disarray.
“I think she is a fantastic leader,” Emerson said.
Former defence minister Joel Fitzgibbon, a leader of the Labor Party’s powerful right faction, said Gillard had the full support of the Labor Party’s caucus.
“She will lead the party to the next election. She is doing a good job in very tough circumstances,” Fitzgibbon said.
Gillard toppled Rudd last year after he sank in the opinion polls, with an election on the horizon.
But she suffered a voter backlash at elections she called last August, but held on to power by forging agreements with the independents and Greens. (Reporting by James Grubel; Editing by Mark Bendeich and Ed Davies)