Slowly but it seems surely, the party backing ousted prime minister Thaksin Shinawatra is shaping up to form Thailand's next government, a stunning reversal of fortune after last year's military coup.

Nobody doubted that the People Power Party (PPP), the reincarnation of Thaksin's disbanded Thai Rak Thai (Thais Love Thais) political juggernaut, would come first in Sunday's election.

But after a 15-month army-led campaign to discredit Thaksin and his five years in office, few thought they would come within just eight seats of an outright majority in the 480-member parliament.

Even fewer thought the army, which has obvious reason to be worried about a pro-Thaksin administration, would stand by and let PPP start brokering coalition deals with smaller parties.

Of course, potential hiccups remain, ranging from mass candidate disqualification to another military coup. But as each day passes, the odds on such an upset get longer.

The PPP now says it has support from four minor parties. Its refusal to name them for now, a common feature of post-election horsetrading in Thailand, is looking less and less important, especially since at least one party has not denied a deal.

'To create that coalition and actually get it going, the hurdles are relatively few,' said Bangkok-based political historian Chris Baker.

Cambodia's wily and long-serving prime minister, Hun Sen, has already offered PPP leader Samak Sundaravej warmest congratulations on a 'landslide victory' and said he was looking forward to 'working closely' with him.

Nor is there is any doubt in Samak's mind. Within hours of a PPP victory becoming clear, the combative former Bangkok governor declared he would 'certainly' be the next prime minister.

So, does this mean the former southeast Asian tiger, whose economy is growing at its slowest rate since 2001 due in large part to two years of political crisis, is moving into calmer waters?     Unlikely.

Thailand's 64 million people remain deeply torn between love and loathing of Thaksin, who said in Hong Kong on Tuesday he was confident of a return from exile to face corruption charges sometime between February and April.

The new government will have few friends in the royalist establishment, the capital or the media, a combination that suggests the political dinosaurs likely to make up the next cabinet will soon find skeletons emerging from cupboards.

'There will be scandals very quickly, within two to three months. The press will ride them extremely hard,' Baker said. 'Thailand will muddle ahead, not necessarily muddle through.'    

Having hoped the election would clear the political air and introduce a measure of stability, investors were hardly overjoyed at the election result, pushing the stock market up three percent in typically thin and skittish Christmas Day trade.

The notable exceptions were companies with links to Thaksin, such as mobile phone firm Advanced Info Service, Internet service provider CS Loxinfo and developer SC Asset, all of which rose strongly.

They all fell on Wednesday, albeit much less than they had risen on Tuesday, as wary investors took profit. Some analysts believe the emergence of a civilian government, whatever its stripes, will demonstrate a political advance.

'The downside will be limited as the longer-term outlook for the Thai market has actually improved with more clarity on the political front,' KGI Securities strategist Rakpong Chaisuparakul said in a research note. - Reuters