Malaysia govt loses key state of Penang

Malaysia's opposition threatened on Saturday to hand the ruling coalition its biggest upset in 40 years by winning the northern island state of Penang, sources on both sides of politics said.

"It's bad. They have lost Penang," a source close to Prime Minister Abdullah Ahmad Badawi told Reuters just two and a half hours after polling booths closed at 0900 GMT. "It's a perfect storm," he added. "Big guns are falling all over the place."

A lawmaker from the main opposition Democratic Action Party (DAP) said unofficial figures showed the opposition was leading in 17 of the 40 state assembly seats in Penang, a manufacturing hub that is home to a number of multinational electronics firms. Local independent news Web site malaysiakini said it was leading in six more seats.

The ruling coalition is almost certain to get a majority and form the government at the federal level, but the results could spell trouble for the prime minister's leadership and race ties in the multi-racial Southeast Asian nation.

"What has happened is there were aspects of unhappiness everywhere -- Indians, Chinese and Malays," the source said. "All these storms came together and there's this massive swing."

"The only thing you can say now is that there will be a simple majority," he added. "It will be the biggest setback since 1969."

Race relations have become a big issue in a country that has long been proud of the racial harmony among its majority Muslim Malays, and ethnic Chinese and Indian minorities.

Opposition rallies had drawn big crowds, especially Chinese and Indian voters unhappy with Abdullah's Malay-dominated coalition.

Chinese and Indians account for a third of the population of 26 million and some complain the government discriminates in favour of Malays, when it comes to education, jobs, financial assistance and religious policy.

But the final result is unlikely to be clear until at least 1600 GMT on Saturday. About 70 percent of Malaysia's 10.9 million eligible voters had cast ballots, the country's chief election official said.

An early hint of the changing political winds was a police ban on victory processions after the results. Malaysia's worst episode of racial violence, in 1969, was sparked off by just such a parade.

The poll, called before it was due in May 2009, was widely seen as a referendum on Abdullah's rule.

But the electoral system was also on trial as opposition parties accused the multi-racial Barisan Nasional coalition of vote-rigging to continue its five-decade-long grip on power.

A phone survey on election eve showed non-Muslim voters were set to deliver a protest vote against the coalition, said Ibrahim Suffian, of local market-research firm, the Merdeka Center.

It also showed signs of a protest vote among the Muslim majority, which is made up almost entirely of ethnic Malays and generally votes for the main ruling party, UMNO.

"We saw some numbers that indicate that there might be a swing among Malay voters towards the opposition," he said, adding many of Abdullah's supporters appeared to have stayed at home.

Barisan holds 90 percent of the seats in the outgoing federal parliament and political experts had predicted Abdullah's continued leadership could be in jeopardy if his majority falls back below 80 percent, or around 178 seats in the new 222-seat parliament.

The economy has been growing at a 6 percent annual clip but inflation and a likely U.S. economic slowdown inspire worry.

"The people are already fed up," said Sharil Azrul, an Internet entrepreneur on the northern island of Penang. "Prices have been rising. We want the opposition to have a chance."