CANBERRA Australia's political gridlock inched nearer to a resolution that would provide market certainty on Monday after "kingmaker" independent lawmakers set new demands as the price for their support for a minority government.
Prime Minister Julia Gillard's Labor is fighting to hold on to power after neither of the main parties won a majority in August 21 elections. Her rival, conservative opposition leader Tony Abbott, wants to scrap a proposed mining profits tax and emissions trade plans, as well as a $38 billion (24.4 billion pound) telecoms project.
Both leaders are courting a handful of independent and one Green lawmaker to get the 76 parliament seats required to rule.
One of those independents, Tasmanian Andrew Wilkie, presented Gillard and Abbott with his 20 priorities, ranging from a price on carbon to limits on slot machines and pension increases.
"They have both got work to do. I'm heartened by the response of both parties today, very heartened actually," Wilkie told reporters after talks with Gillard and Abbott.
"I would certainly hope that all of the independents have made their decisions, and we all know the shape of the political landscape in Australia, by the end of the week."
Another independent, Bob Katter, said he was also drawing up demands for his outback Queensland seat, which sprawls over an area twice the size of the United Kingdom.
The uncertainty over which party will gather the support to form government has unsettled markets, and JP Morgan said on Monday it could unsettle investors for weeks.
"A layer of persistent political risk ... against a backdrop of heightened uncertainty over the state of the global economy, will weigh on investor sentiment and AUD (Australian dollar), in particular," the bank said in a research note.
However, Australian shares shook off the uncertainty, rising 1.9 percent to reach a post-election high, led by mining stocks on the back of stronger world metal prices.
Investors are concerned Gillard could make major concessions to the sole Green MP, Adam Bandt, and Wilkie -- a former Greens party member -- to build a working majority.
Bandt backs the proposed mining tax, which affects miners like Rio Tinto and BHP Billiton, while Wilkie wants a crackdown on gambling, which would affect stocks like Tabcorp Holdings, Tatts, Crown and Aristocrat Leisure.
Adding to the confusion, independent Rob Oakeshott said on Monday he had received a threatening phone call from a conservative MP and accused Abbott's coalition of trying to discredit him, making the conservative leader's job harder.
Bookmakers have Abbott as favourite to win the support of enough independent MPs to form a government, a result that would also please financial markets hoping for Labor's 30 percent tax on iron ore and coal mines to be axed.
Those hopes rest on the conservatives looking likely to hold one more seat than Labor in parliament -- 73 versus 72 -- giving them a head-start in negotiations with the independents.
Even though three of the independents were once members of the National Party, part of Abbott's conservative coalition, they have all had bitter splits with their former party colleagues.
Independent Tony Windsor, another ex-conservative, put the chances of another election as high as 10 percent, but said he hoped the situation could resolve itself this week, after an intense round of negotiations with the major parties.
(Editing by John Chalmers)