Turkish nationalists stormed to dramatic electoral successes yesterday, dashing Islamist hopes of power and challenging the Prime Minister, Mr Bulent Ecevit, to embrace them in government.
Istanbul's stock market was down more than 3 per cent due to concern that the political wrangling of the last four years could continue, further delaying badly needed economic reforms. Bond yields rose two to three percentage points to 102-103 per cent.
"There's a reactionary nationalism in Turkey," political science professor Mr Cetin Yetkin said. "Domestically, the Kurdish question has made people remember they are Turks. Externally, there is the isolation from the Western world."
Computer projections suggest the Nationalist Action Party (MHP), which failed at 1995 polls to clear the 10 per cent hurdle, would garner about 130 seats, six behind Mr Ecevit's Democratic Left Party (DSP).
The Islamist Virtue Party, biggest grouping in the last parliament, suffered a bitter defeat. Protest votes went on Sunday to the radical MHP.
"Virtue's decline will pull Turkey away from the appearance of a country where radical Islam is on the rise," said Mr Ertugrul Ozkok, editor of the Hurriyet newspaper.
It will also ease fears in the powerful army, which saw Virtue as a threat to Turkey's secularist constitution.
The MHP leader, Mr Devlet Bahceli (51), an economist, was asked if he would entertain a coalition with the DSP and Mr Mesut Yilmaz's conservative Motherland Party.
"Why not? If they accept our terms. We will strive to find a middle road," he said. Both the DSP and the MHP appeared to have gained from the "Ocalan Factor".
Mr Ecevit, who has always combined left-wing credentials with a strong nationalistic streak, saw his popularity rise with the capture of Kurdish guerrilla leader Mr Abdullah "Apo" Ocalan shortly after he took office in January. Mr Ocalan is being charged with the deaths of 29,000 people arising from the 14-year Kurdish struggle for autonomy.
The MHP benefited from the same nationalist sentiment, whose immediate origins might be traced back to an EU decision over a year ago to omit Turkey from a list of countries invited to seek EU membership.
Since then, Turkey's foreign policy has grown more robust. Threats of military action led Syria to expel Mr Ocalan on the first stage of his sojourn into captivity and caused Cyprus to drop plans to deploy Russian anti-aircraft missiles. Relations with Brussels are, at best, frosty.
DSP and MHP have a history of conflict in the 1970s when supporters of left and right fought bloody street battles that led eventually to a 1980 military coup. But Mr Ecevit said on Sunday night times had changed.
Mr Ecevit could decide, when invited by President Suleyman Demirel to try to form a government, that it would be impossible to rule without the MHP.
Meanwhile, Turkey's main Kurdish party swept to clear victory in local polls across the country's Kurdish south-east. Unofficial returns showed the People's Democracy Party (HADEP) securing key mayoral posts in local polls in the southeastern cities of Batman, Bingol, Hakkari, Siirt, Sirnak and the regional capital of Diyarbakir.
It was the first time a Kurdish party had achieved office in the region.