By Padraic Halpin and William James
DUBLIN (Reuters) - Ireland's ruling coalition was ousted by voters angry at the country's uneven recovery, results indicated on Saturday, leaving Prime Minister Enda Kenny facing the unpalatable prospect of trying to secure a deal with his biggest rival.
His government appeared to be the latest victim of European voters' growing antipathy to mainstream politics, hit by a backlash against years of austerity and a perception that Ireland's poor are not benefiting from the fastest economic growth in Europe.
Exit polls suggested the only viable option may be a problematic alliance of old rivals Fianna Fail and Kenny's Fine Gael - although even their combined support was set to fall below 50 percent of the vote for the first time.
If neither side is able to form a government, however, fresh elections would have to be called.
"The government of Fine Gael and Labour cannot be returned," Kenny told journalists late on Saturday. "I've a duty and a responsibility to work with the decision that the people have made to provide the country with a stable government, and that I intend to do fully and completely."
The center-right Fine Gael captured 26 percent of first preference votes when 38 of 40 constituencies were counted. That is far below the 36 percent it won five years ago and the 30 percent opinion poll rating it had at the start of campaigning.
Current coalition partner Labour was in line to win just 7 percent of the ballot, which spending minister Brendan Howlin said meant they were out of the equation for the next government.
Fianna Fail was set to rise to 25 percent.
"It was certainly worse than my worst fears," Health Minister Leo Varadkar, a senior member of Fine Gael. He said there was very little support for a Fine Gael-Fianna Fail coalition, but he refused to rule it out.
WEEKS TO FORM GOVERNMENT
However, Fianna Fail leader Micheal Martin hinted that he would first try to form a government with other groups.
"We'll be putting a mandate before the Dail (parliament) on March 10 and seeking the support of others in the first instance and there'll be a large group of TDs (members of parliament) elected outside of Fine Gael and Sinn Fein," Martin told national broadcaster RTE.
"We're committed to ensuring the country gets a good government, but it's going to take time."
Analysts said a coalition of Fine Gael and Fianna Fail - heirs to opposing sides in a civil war almost a century ago - was the only option.
"Either we could have another election now and do away with the count, or we'll let them muddle around for a month or so and maybe they can think the unthinkable," said Michael Marsh, a professor of politics at Trinity College Dublin.
While the parties have few policy differences, one minister described the prospect as a "nightmare" during the campaign.
Others fear it would allow left-wing Sinn Fein, the former political arm of the Irish Republican Army, which polled at 15-16 percent, to establish itself as the main opposition party.
Fine Gael strategist Mark Mortell said Kenny would "hold off making phone calls" until early next week but that there was a very high risk of a second election this year.
The first of 157 seats was declared at 10.30 a.m. ET with the final winners potentially not decided until early next week.
Framed as a debate over how to distribute the profits of accelerating economic growth, Kenny's campaign to "keep the recovery going" rang hollow with many voters yet to feel any benefit after years of spending cuts and tax rises.
"There's total disillusionment with party politics. The independents and the smaller parties seem to be almost like the last hope for the country," said John McKeever, a voter in Dublin. "It's not a recovery for a good 30-40 percent of the country. It's a rich man's recovery."
The exit polls suggested a major transformation had occurred in the party system as a result, just weeks before the centenary of the 1916 Easter Rising, the most dramatic chapter of Ireland's struggle for independence from Britain.
Fine Gael and Fianna Fail, which have swapped power since the state's foundation, and Labour, the junior partner in many governments, were shunned in favor of independent candidates, smaller parties and the rising Sinn Fein.
At the start of the last parliament in 2011, the three parties held 80 percent of the seats.
"We're seeing a collapse of the two-and-half party system," said Paul Murphy, a member of one of the likely beneficiaries, the left-wing Anti Austerity Alliance and People Before Profit group.
The results echo recent elections in Portugal and Spain, where anger at austerity, perceptions of rising inequality and mistrust of established political elites left parliaments fragmented and parties struggling to form governments.
Uncertainty over the election outcome pushed the gap between Irish and French bond yields to its widest in eight months this week, although Ireland can still borrow near record lows. Robust growth of around 7 percent last year is seen as insulating its financial assets against a potential stalemate.
(Additional reporting by Conor Humphries; Editing by Gareth Jones)