JAKARTA, April 12 (Reuters) - Indonesian stocks may rise slightly and the rupiah is likely to trade at current levels when markets open on Monday, analysts said, after the president's party led with one fifth of the votes in last week's election.
President Susilo Bambang Yudhoyono's Democrat Party raised its share to 20.5 percent, from 7.5 percent in 2004, quick count and early official results showed.
The results were in line with market expectations but below the level indicated by some recent opinion polls, reducing hopes that Yudhoyono would be able to push ahead with sweeping reforms of the judiciary, civil service and other institutions considered key to attracting more foreign investment.
Analysts said the results meant 'business as usual', with Yudhoyono continuing his existing policies of tackling graft and addressing economic growth, but that he would find it harder to form a strong cabinet to push tough reforms through parliament.
'The elections have been largely peaceful and smooth. This should help bolster sentiment in the stock market,' said Tjandra Lienandjaya, an analyst at BNP Paribas.
Yudhoyono said last week he would start coalition talks with other parties ahead of presidential elections in July, which he is tipped to win. Several other parties are also in talks about forming rival blocs to field presidential candidates.
For a scenarios on possible coalition outcomes, click on
Indonesia's benchmark stock index, which lost about half its value last year, has risen 8 percent this year to end at 1,465.75 on Wednesday.
The financial markets were shut for holidays on Thursday and Friday. The rupiah currency also firmed ahead of the election to around 11,300 per dollar.
Favourable external factors such as a sharp rise in U.S. stocks on Thursday, before the holiday weekend, as well as strong gains in the rupiah and expectations of a further easing in inflation should help the bond market, which has rallied in the past month, analysts said.
'Foreign investors are likely to continue coming in. They have started coming in for about a month,' said Francis Tjahjo Soetopo, Jakarta-based debt analyst at Deutsche Bank, adding that bond prices would therefore probably remain firm.
'If the rupiah keeps strengthening, there will be more demand for bonds as well as stocks,' he said.
Soetopo said he expected the one-year bond yield could head lower to 8 percent from 9 to 9.3 percent currently, pushing mid- and longer-term yields as well.
Economists noted that the government has already raised a significant portion of this year's borrowing requirement, which means investors are less concerned about Indonesia's ability to fund its budget deficit.
THey said that investors would see the Democrat Party's performance as providing continuity in policy, provided the early results proved accurate.
'It means the current policy can be maintained, and those certainties will prompt a positive reaction,' said Djoko Retnadi, an economist at Bank BRI.
(Reporting by Gde Anugrah Arka and Sonya Angraini in Jakarta; Writing by Sara Webb; Editing by Kazunori Takada)
((ga.arka@thomsonreuters.com; Reuters Messaging: ga.arka.reuters.com@reuters.net; +62 21 384 6364 ext 911)) Keywords: INDONESIA MARKETS/
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