TOKYO, June 1 (Reuters) - Japanese Prime Minister Taro Aso is probably eyeing an election on Aug. 30 or Sept. 6, Jiji news agency quoted a ruling party executive as saying, amid signs the ruling bloc would lose if a poll were held soon.

Aso decided on Monday to seek an extension of parliament's session until July 28, officials said, giving him added leeway over when to dissolve the powerful lower house for an election due by October.

"I'm assuming a vote will take place on either Aug. 30 or Sept. 6," Jiji quoted an unidentified Liberal Democratic Party (LDP) official as saying.

Aso's LDP is hoping signs of an improving economy will help the ruling bloc defeat a resurgent opposition Democratic Party and its allies in a general election that many pundits and media had expected in August.

Economists say it may take more time to cheer voters up given rising unemployment, now at a 5-year high.

Opinion polls conducted after opposition Democratic Party leader Yukio Hatoyama, a fourth-generation politician, replaced his scandal-tainted predecessor on May 16 have shown the Democrats in the lead.

"If an election were held now, the LDP-led coalition would lose," said Tomoaki Iwai, a professor at Nihon University.

"Everyone will be looking at the June opinion polls. If the Democrats do well, the election will be later rather than sooner."

Dates ranging from July 12 to Sept. 6 have been floated for the election.

BREAKING THE DEADLOCK

An opposition victory in the election would end more than five decades of nearly unbroken rule by Aso's business-friendly LDP and bring to power a party pledged to stress consumer and worker rights over corporate interests.

A decisive Democratic win could also resolve a political deadlock that has stymied policy-making as the world's second-biggest economy struggles with recession, a breakthrough that would be welcome to investors in Japan's stock market.

"The advent of a Democratic Party-led government would make running the government easier," said Yasutoshi Nagai, a chief economist at Daiwa Securities SMBC Co Ltd.

"They would be able to handle policy better and that would be a plus for stocks."

"The (DPJ) policies are not so different (from the LDP) so it?s a question of whether policies can be implemented or not."

Japanese politics has been largely deadlocked since the Democrats and smaller allies won control of parliament's upper house in 2007, allowing them to delay legislation.

Political analysts said if the Democrats kept a healthy lead in the next round of media polls, which could come next weekend, Aso would lean towards a later election in hopes that Hatoyama and his party might stumble or another scandal emerge.

Hatoyama's predecessor, Ichiro Ozawa, stepped down after a fundraising scandal that ensnared a close aide had threatened his party's best-ever chance of ousting the LDP.

"If he (Aso) dissolves the lower house, the LDP is going to lose unless Hatoyama messes up terribly," said Gerry Curtis, a Columbia University professor and expert in Japanese politics.

"Who knows? When people vote, they might be afraid the DPJ won't be able to manage things," Curtis added.

"Anything is possible, But right now, there is a very good chance that Hatoyama is the next prime minister."