SYDNEY (Reuters) - Australia's opposition claimed the upper hand on Tuesday in its bid to form a government, as counting from this month's inconclusive election gave it more votes and parliamentary seats than the ruling Labor party.
Neither the conservative opposition nor Prime Minister Julia Gillard's Labor Party won a clear majority at the Aug. 21 election. Both are locked in a race to secure enough support from independent MPs to form a minority government.
Financial markets hope opposition leader Tony Abbott's conservative coalition prevails, given his promises to scrap Gillard's proposed mining profits tax and carbon-trading plans, and a $38 billion broadband project that could hurt dominant telecoms provider Telstra.
Those hopes firmed on Tuesday, during the final stages of counting, when the conservatives pulled ahead of Labor in terms of overall votes -- an advantage Gillard had earlier promoted as a major reason why she was best placed to form a new government.
"It's basically consistent with what the market seems to have factored in: that Abbott will get up," said Shane Oliver, head of investment strategy at insurer and asset manager AMP, which manages $85 billion in Australia.
"At the moment the market is hanging on the belief that the coalition will probably get up, and that's helped mining stocks."
KINGMAKERS WANT STABILITY
But Labor's Small Business Minister Craig Emerson said it was too early to claim the moral high ground for government, with over a million votes to be counted and only a handful of votes splitting both sides after transfer of second-preference votes.
Tony Windsor, one of the four independents holding the key to power for Gillard and Abbott, said that he would back the candidate he felt would maintain a stable government, and not necessarily the one with the most votes.
"The main thing I'll be looking for is in relation to stability of governance for the next three years, and that's going to be fairly difficult to find with very tight numbers," he told Australian radio.
The four "kingmaker" MPs have threatened to force fresh elections should they lose faith in both sides ability to deliver parliamentary reform and stability.
Australian shares fell on Tuesday, in tune with a sell-off on Wall Street, but local mining stocks have fared better than other sectors since the election on hopes that Gillard would be ousted and the mining tax scrapped.
Miners that stand to benefit from the tax's demise include Rio Tinto, BHP Billiton, Xstrata and Fortescue Metals Group.
Scrapping the broadband network is also seen as benefitting shareholders in Telstra, as it would kill a $10 billion deal by the company to provide its infrastructure to the scheme.
Political and constitutional experts have dismissed the market's reaction as wishful thinking and point out that most of the independents in the new parliament favour some Labor policies over the conservative agenda.
Underlining the post-election volatility, a poll on Tuesday showed 13 percent of voters would have decided differently had they known the country was headed towards gridlock, possibly pointing to a vastly different parliament next time around.
The nationwide Ogilvy Illumination poll in the Sydney Morning Herald newspaper showed voters aged between 18 and 24, and strongly supportive of Greens lawmakers backing carbon trading and broadband, were most inclined to change their vote.
Election projections point to the conservatives ending up with 73 seats and Labor 72, with the four independents and one Green MP, who has already said he favours Labor in the race to gather the 76 seats needed to govern the 150-seat lower house.
Moody's Investors Service said it expected the stable trend in Australian corporate ratings to continue as the new financial year progressed, though conditions were likely to remain choppy as the effects of the sharpest slowdown in decades continued.
Later on Tuesday, Gillard is due to speak at the National Press Club in Canberra, in between intense negotiations with the independents in an effort to form government. At least one of the independents said he would decide this week which side to back.
That independent, Andrew Wilkie, has already asked both Gillard and Abbott to launch a crackdown on gambling, which would affect stocks like Tabcorp Holdings, Tatts, Crown and Aristocrat Leisure.
(Additional reporting by Rob Taylor in Canberra; Editing by Ed Davies and Miral Fahmy)
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