Australian leaders haggle to form government

Prime Minister Julia Gillard, who suffered a fierce voter backlash, and opposition leader Tony Abbott both launched talks on a coalition administration with three key independent lawmakers who will likely hold the balance of power.

With both leaders claiming to have the mandate to lead a minority government, experts warned the nation's future could hang in the balance for weeks or months, leaving stock and currency markets flat but cautious.

Labour and the opposition Liberal/National coalition were each projected to take 73 seats in the 150-seat parliament, short of the 76 needed to rule in their own right, state broadcaster ABC said.

The independents - who all have past ties with Abbott's party - vowed to stand "shoulder-to-shoulder" to produce a stable government but kept their alliance options open as vote counting from Saturday's poll continued.

The extraordinary weekend election has triggered unusual political turmoil in Australia.

The vote heightens the surreal nature of the campaign after Gillard's Labour deposed elected prime minister Kevin Rudd in June and then bungled a range of policy initiatives.

Officials are counting two million postal and absentee votes, a process which could take 10 days to two weeks, but some experts warned it could be up to three months before a new government is formed.

An expected fall in share prices failed to materialise but mining stocks gained ground on expectations that Gillard's controversial resources tax - vehemently opposed by Abbott - will not proceed if he takes power.

Analysts however fear a weak coalition government with a small majority could unravel within months or even weeks, forcing Australians back to the polls and roiling financial markets.