ISTANBUL (Reuters) - Turkish President Tayyip Erdogan said his ruling AK Party could seek to form a coalition if it fails to secure a parliamentary majority in Sunday’s elections, a prospect which has unsettled investors who fear it could lead to political deadlock.

A pre-election poster depicting Turkish President Tayyip Erdogan reads "Strong President, strong parliament" as people make their way on Taksim square, in Istanbul, Turkey, June 21, 2018. REUTERS/Alkis Konstantinidis

Polls indicate elections may be closer than anticipated when Erdogan called the snap elections in April, suggesting he may be pushed to a second-round run-off for the presidency, and his AKP could lose its majority in the 600-seat assembly.

While investors have been spooked by what they see as Erdogan’s growing authoritarianism, the prospect of political deadlock is also seen as a negative, as it causes uncertainty, making it difficult to gauge the investment outlook.

“If it is under 300 (seats), then there could be a search for a coalition,” Erdogan said in an interview with the Kral FM radio station late on Wednesday.

He added that the probability of this was “very, very low”.

Erdogan has long argued that a stronger presidential system -- due to go into effect after the election -- is a guarantee against the fractious coalition politics that hampered the Turkish government in the 1990s.

The lira dipped 0.6 percent to 4.76 against the dollar by 1000 GMT. The currency has slumped more than 20 percent this year, and has been hit this week by concern about potential political uncertainty.

A compromise would be sought if the opposition obtains a majority, Deputy Prime Minister Mehmet Simsek, the minister charged with oversight of the economy, said.

The AKP formed an alliance with the nationalist MHP before the elections. The ruling party has held a majority in parliament for nearly all of its almost 16 years in power, only losing it in the June 2015 election. But parties failed to form a coalition then and Erdogan called a fresh election in November, restoring the AKP majority.

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The leader of the nationalist MHP said on Monday another election could be held if his alliance with the AKP could not form a majority in parliament after Sunday’s vote.

PRESIDENTIAL ELECTION

Opposition parties also formed an alliance, which excluded the pro-Kurdish Peoples’ Democratic Party (HDP). If the pro-Kurdish party exceeds the 10 percent threshold of votes needed to enter parliament, it will be harder for the AKP to achieve a majority.

In the presidential election, opinion polls on average put Erdogan around 20 percentage points ahead of his nearest challenger, Muharrem Ince of the main opposition Republican People’s Party (CHP).

However, if the election goes to a second round between the two candidates who get the most votes, parties in the “Nation Alliance” that includes the CHP have signaled they will call on voters to support the alliance’s second-round candidate.

Ince has said he would offer vice presidential roles to leaders of the other parties in their alliance.

He has reached out to the HDP during his campaign, visiting its presidential candidate Selahattin Demirtas in jail. Ince’s wife paid a visit to Demirtas’ wife during a visit to Diyarbakir, the largest city in the mainly Kurdish southeast.

Although it traditionally has little support in the southeast, the HDP stronghold, Ince’s rally in Diyarbakir attracted a large crowd. Erdogan said he received intelligence indicating nearly all those attending were HDP supporters.

CHP deputy chair Unal Cevikoz, a former ambassador to Britain, told Reuters that if the opposition obtains a majority of parliamentary seats the opposition candidate would have a better chance in a second round of the presidential race.

It is unclear whether other opposition voters would rally around Ince in the second round, however, given traditional misgivings about the CHP among opposition nationalist, conservative and Kurdish voters.

Under the constitutional changes going into effect after the elections, the number of lawmakers in parliament will increase to 600 from 550 currently.