CORRECTED-Malaysian Front regrouping after poll setback

Corrects name of works minister to ...Samy, not ... Sami...

By Jalil Hamid

KUALA LUMPUR (Reuters) - Malaysia's ruling coalition tried to regroup on Monday after a shocking electoral setback that decimated its ranks and sent markets swooning over the political uncertainties ahead.

Prime Minister Abdullah Ahmad Badawi was sworn into office amid mounting calls for his resignation after the National Front (Barisan Nasional) lost the two-thirds majority in parliament it had held for nearly four decades.

Malaysian stocks dived their limit 10 percent in mid-afternoon Monday and the ringgit skidded as investors sold off infrastructure stocks and shares linked to the federal government or its favoured tycoons.

Abdullah called a special meeting of the coalition for 0700 GMT. At the very least he will need to fill some holes in his Cabinet -- four cabinet ministers lost seats in the weekend election, including Works Minister S. Samy Vellu, the head of the main Indian party in the coalition.

"The political stability of the country becomes a question mark," said Pankaj Kumar, chief investment officer at Kurnia Insurance, who helps manage about $500 million in assets.

Sources close to the Prime Minister said Abdullah had cancelled plans to attend next week's Organisation of the Islamic Conference summit in Senegal -- he was to hand over chairmanship of the 57-member grouping -- to deal with the crisis at home.

Chieftains in Abdullah's party, the United Malays National Organisation, trooped to his residence on Sunday to pledge support. Another key partner in the multi-racial coalition, the Malaysian Chinese Association (MCA), did so on Monday and the Malaysian Indian Congress (MIC) was expected to follow suit.