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Markets Fall as Australia's Political Deadlock Continues


Australia remains in political limbo after the neither major party won a majority in national elections. The uncertainty has caused jitters on the financial markets as the governing Labor Party and the conservative opposition try to establish a coalition administration.

Fourteen million Australians were eligible to have their say in Saturday's election, yet the next government is likely to be decided by a handful of lawmakers.

Election analysts predict that both the governing Labor Party and the Liberal-National opposition will end up with 73 seats in the lower house of parliament, three short of a majority. This will be Australia's first hung parliament since 1940.

Labor leader Julia Gillard says she is capable of delivering a stable coalition administration. Her conservative rival, Tony Abbott, argues that Labor's poor election performance stripped it of any legitimacy.

Both leaders are talking with three independent and one Green Party members of parliament as they try to assemble a majority.

Financial markets have stalled because of the political uncertainty. The Australian dollar and main stock index fell slightly Monday, but some mining stocks rose in price, as investors gambled that the conservatives will form the next government, and scrap a controversial mining profit tax.

Angus Geddes, from the Fat Prophets equity research company in Sydney, says if Labor clings to power with the help of environmentalists, the mining sector could face more problems.

"With the mining tax there has been a fairly muted reaction today but obviously if there was a coalition government formed between Labor and the Greens we would most likely see probably an increase in the tax rate," Geddes said. "The Greens would want more taxes on the mining industry which will obviously be negative for the stock market."

The spectacular collapse in support for Prime Minister Gillard's Labor Party has been blamed on her sudden ousting of her predecessor, Kevin Rudd, in June.

His removal prompted questions about Ms. Gillard's integrity and loyalty. The unpopularity of state Labor governments in two of Australia's most populous states, New South Wales and Queensland, also sullied the party's image.

Political analysts here say although many voters chose to punish Labor, they by failed to deliver a decisive mandate to Tony Abbott's conservative opposition. The impasse is expected to last several days as the final votes are counted and negotiations continue on forming a coalition government.

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