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UPDATE 1-Republican Cantor to leave leading U.S. House post after election shock

shock@ (Rewrites throughout with Cantor plans to step down as House Majority Leader)

WASHINGTON, June 11 (Reuters) - U.S. House of Representatives Majority Leader Eric Cantor plans to step down as the No. 2 House Republican after a shock election defeat to a Tea Party movement upstart that set off an unexpected scramble for new leadership.

The Washington Post reported that Cantor would leave his post effective July 31. A House Republican aide confirmed that Cantor plans to leave his leadership post.

Republicans were scheduled to meet at 4 p.m. EDT (2000 GMT) after Cantor was defeated on Tuesday in a primary race in his Virginia district by a political rookie backed by the conservative Tea Party.

In his campaign against Cantor, college economics professor David Brat accused Cantor of being too willing to compromise with Democrats on immigration and budget issues and of not fighting hard enough against President Barack Obama's signature healthcare law known as Obamacare.

That, despite Cantor's role in staging more than 40 votes in the House to repeal all or parts of Obamacare over the last few years.

Amid the party turmoil, House Speaker John Boehner is expected to remain in his position through this year and to seek re-election to the job next year if Republicans maintain their control of the chamber, as expected, in November elections.

Cantor had been seen by many as an eventual successor to Boehner.

Already, one leading House Republican, Representative Paul Ryan of Wisconsin, told reporters he was not interested in a party leadership job.

"That's just not been my interest," Ryan said. He is expected to take over the powerful House Ways and Means tax-writing panel next year. Ryan also has been mentioned as a possible 2016 presidential hopeful or as seeking the House Speaker job further down the line.

The shakeup left Republicans and Democrats in Congress wondering about the debate over future legislation, especially budget and debt limit measures later this year and in early 2015.

"My concern is that the Ted Cruz supporters, the Rand Paul supporters, are going to use this as an excuse to basically stop the government from functioning," Representative Peter King, Republican of New York, told MSNBC's Morning Joe on Wednesday, referring to the two influential conservative senators who could run for president in 2016.

By late March 2015 Congress will have to pass legislation increasing the federal government's borrowing authority or risk a default. Later this year, legislation to fund the government beyond Sept. 30 also will be necessary. Without it, federal agencies would have to shut most of their operations.

Last year, Boehner and Cantor tried and failed to talk fellow Republicans out of a strategy that ended up closing the government for more than two weeks in October in a bid to repeal Obamacare.

An emboldened Tea Party movement, which emphasizes smaller government, could bring a return to the chaotic budget and debt limit showdowns that rattled financial markets in 2011-2013 eventually wore thin with many voters nationwide.

Financial market analysts feared that the relative political calm that had prevailed since a December 2013 budget deal could now be disrupted.

"I just think it underscores the total political dysfunction" in U.S. politics, said Doug Kass, president of Seabreeze Partners Management in Palm Beach, Florida. Noting the need for fiscal and regulatory reform, he added, "this defeat suggests it may retard it."

Months of political jockeying could lie ahead before House Republicans settle on their next leadership team. Brat beat Cantor, a seven-term congressman with close ties to the financial industry, despite being vastly outspent.

The defeat was an ironic turn for Cantor, who vaulted into the majority leader job in 2011 after he helped Republicans capture the chamber the previous November on a wave of Tea Party support.

(Additional reporting by Julia Edwards, Susan Cornwell, David Lawder and Patrick Temple-West; Editing by Caren Bohan and Grant McCool)