UPDATE 2-Taiwan pro-China party holds edge in mayoral races

Sat Nov 27, 2010 7:40am EST

* China seen calm as KMT keeps 3 of 5 posts

* Taiwan financial markets seen steady or stronger next week

(Adds election results, analyst quote)

By Ralph Jennings

TAIPEI, Nov 27 (Reuters) - Taiwan's China-friendly ruling party held onto most of the island's mayoral posts up for grabs in tense elections on Saturday seen as a test of the party's popularity ahead of the 2012 presidential race.

Wins in three of five mayoral seats gave the Nationalist Party, or KMT, a clear shot at retaining the presidency, which will calm Beijing as it has worked closely with the party on landmark trade deals after decades of political hostilities.

China has claimed sovereignty over self-ruled Taiwan for six decades but since 2008 has discussed economic issues with President Ma Ying-jeou's government. Beijing hopes those talks will lead eventually to political unification.

"Of course China doesn't want to see any change in the status quo, particularly in the three cities that the KMT has held for a long time," said Shane Lee, political scientist at Chang Jung University in Taiwan.

The KMT won second four-year terms in Taipei and Sinbei, the island's two largest cities, and in the central city of Taichung. The anti-China opposition Democratic Progressive Party (DPP) held the southern cities of Kaohsiung and Tainan.

Taiwan financial markets will at least remain stable and may gain on the KMT's victories as the results herald more tie-ups between export-reliant Taiwan and economic powerhouse China.

Investors had feared that a DPP win could extend to the presidency and threaten trade deals. China and Taiwan are due to talk next year about new import tariff cuts following an economic cooperation framework (ECFA) signed in mid-2010.

Saturday's wins also end a slump for the KMT. The party did poorly in local polls elsewhere in Taiwan last year and in by-elections earlier this year as Ma's opinion poll ratings struggled after a string of 2009 domestic flaps. [ID:nRISKTW]

However, Taiwan politics change fast, meaning the 2012 presidential race will be decided by unforeseen new issues dominating the public agenda that year.

KMT leaders were low-key in their acceptance speeches.

"Hau Lung-bin will go to the people and listen to their voices," the reelected Taipei mayor said of himself in a televised speech. "There are a lot of areas where we need to review and improve."

Voters cast ballots after the son of a former Taiwan vice president was shot and wounded during a ruling party campaign rally near Taipei late on Friday and a bystander was killed.

Media reports said a man arrested for the shooting was a member of a criminal gang and did not appear to have a political motive.

Opposition ex-president Chen Shui-bian won by a thin margin in 2004 after a bullet grazed him and his running mate. The KMT said that incident was staged to win sympathy votes. (Editing by Andrew Marshall)

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