By Orhan Coskun and Ercan Gurses
ANKARA, June 8 (Reuters) - Turkey faced the prospect of weeks of political turmoil after the ruling AK Party lost its parliametary majority in weekend polls, dealing a blow to President Tayyip Erdogan's ambitions to acquire sweeping new powers.
Instead of the two-thirds majority he had wanted to change the constitution and create a new presidential republic, the AK Party, while remaining the biggest party, failed even to achieve a simple majority. The outcome augurs weeks of unpredictability as parties vie to form a coalition and possible early elections.
The result could also prompt some soul searching in the AKP, Turkey's dominant political movement for more than a decade, where in recent years religious conservatives, with Erdogan's support, have gained the ascendancy at the expense of center-right and liberal elements.
Erdogan, strident in his attacks on opponents he has in the past accused of betraying Turkey, seemed conciliatory in first comments after the poll - a stark contrast to his triumphalist appearances after recent local and presidential elections
"Our nation's opinion is above everything else," he said. "I believe the results, which do not give the opportunity to any party to form a single party government, will be assessed healthily and realistically by every party.
The precarious outcome may stir concern in Western capitals that see NATO member Turkey as an important island of political stability bordering Syria, Iraq and Iran. Nearly two million Syrian refugees now live in Turkish camps, Islamic State militants stand on the country's borders and the United States keeps an air base at Incirlik, in south-east Turkey
The uncertainty also triggered a sharp sell-off in Turkish assets, reviving for some memories of fractious, short-lived coalition governments that battered the economy in the 1990s and triggered a string of army coups in the second half of the 20th century.
The lira slid to a record low of 2.8 to the dollar , the Istanbul stock index tumbled 8 percent, and the 10-year benchmark bond yield surged to within a whisker of 10 percent.
Erdogan, Turkey's most popular modern leader but not one used to compromise and negotiation, had hoped a crushing victory for the AKP would allow it to change the constitution and create a more powerful U.S.-style presidency.
The swing away from the President and AK may have had numerous causes.
Some voters may have been disillusioned by Erdogan's increasingly bellicose tone, others wary of his plans to amass further power or alarmed by recent graft scandals around the government that Erdogan ascribed to attempts to topple him and which he cited in launching a purge of the judiciary.
Decisive was the success of a pro-Kurdish opposition party campaigning on a broad leftist agenda that surged ahead to enter parliament.
Turkish Prime Minister Ahmet Davutoglu with his wife Sare wave to his supporters from the balcony of the AK Party headquarters June 7, 2015 in Ankara, Turkey. (Gokhan Tan/Getty Images)
EARLY ELECTION POSSIBLE
Deputy Prime Minister Numan Kurtulmus told reporters the AKP would try to form a coalition government as its first option and was optimistic that it would be able to do so, but added that an early election could be on the cards if it failed.
A coalition without the AKP, he said, was impossible.
The right-wing Nationalist Movement Party (MHP) is seen as its most likely partner. But its leader Devlet Bahceli all but ruled out such a deal on Sunday, saying Turkey should hold a new election if the ruling party was unable to agree a coalition with other opposition groups.
"The possibility of a government coming out of the current situation is very slim," one senior AKP official said, ahead of a meeting with Prime Minister Ahmet Davutoglu and party leaders to evaluate Sunday's outcome.
"With these results, an early election seems inevitable."
Two other AKP officials also told Reuters a new election looked unavoidable, while Finance Minister Mehmet Simsek warned a coalition would not be as reformist as a single-party government.
Erdogan has yet to appear in public following the election result, but is expected to meet Davutoglu later on Monday. He is expected to ask Davutoglu to try to form a government, but could call an early election if Davutoglu is unable to do so within 45 days.
"Everything, from the economy to big projects, is currently on hold, and we don't have the luxury of continuing with an uncertain and weak government at a time when the world is facing great economic risks," a second senior AKP official said.
Supporters wave Turkish flags and shout slogans outside the AK Party headquarters June 7, 2015 in Ankara, Turkey. ( Gokhan Tan/Getty Images)
The AKP's failure to win an overall majority marks an end to more than a decade of stable single-party rule and is a setback for both Erdogan and Davutoglu.
Both men had portrayed the election as a choice between a "new Turkey" and a return to a history marked by short-lived coalition governments, economic instability and coups by a military whose influence Erdogan has now reined in.
The secularist Republican People's Party (CHP) remained the second biggest group in parliament with around a quarter of the vote. But it is ideologically opposed to the AKP and has ruled out any prospect of a coalition with the ruling party.
A blow as the election was to Erdogan, Turkish politics remains marked by the absence of any rival politician to inspire and rally opposition. He is a towering figure, enjoying fierce loyalty especially in the Anatolian heartland.
Sunday's big winner, the pro-Kurdish Peoples' Democratic Party (HDP), which crossed a 10 percent threshold to enter parliament for the first time, has also ruled out going into coalition with the AKP.
Its co-leader Selahattin Demirtas said on Sunday the election outcome had put an end to talk of the stronger presidential powers championed by Erdogan.
A third AKP official said an agreement with the MHP was possible and warned that a failure to do so could lead to prolonged uncertainty that could erase some of Turkey's hard-won economic gains.
"Though it is not a very strong option, it is the only option for a government with AKP ... The only thing that can relieve the markets at this point is an AKP-MHP coalition," the official said. (Writing by Nick Tattersall; editing by Ralph Boulton)