By Stuart Grudgings
KUALA LUMPUR (Reuters) - Malaysian Prime Minister Najib Razak dissolved parliament on Wednesday, paving the way for a general election expected this month that could be the most closely contested his ruling coalition has faced in its 56-year rule.
Najib faces a confident opposition alliance led by former deputy prime minister Anwar Ibrahim and is under intense pressure to restore his ruling coalition's two-thirds majority that it lost for the first time in a disastrous 2008 poll.
Failure to win back that majority would throw his leadership and his economic reform program into doubt, raising uncertainty over policy in Southeast Asia's third-largest economy.
A win for Anwar's opposition is unlikely but not impossible, and would put the former British colony into uncharted political territory.
Najib, who took over in 2009 after the election debacle, will point to brisk economic growth of 5.6 percent last year as he seeks to regain electoral ground.
"Our national transformation is still a story half told. If we do not keep up the pace of reform, we risk losing out. But with a strong mandate, we can continue," Najib said in a television address, exactly four years after he took power.
The election appears likely to be held on Saturday, April 27, after a two-week campaign period.
Najib said he hoped for a "solid" majority.
The 59-year-old son of a former prime minister is aiming to push Malaysia into high-income status by 2020 through an ambitious $444 billion economic transformation program.
He has warned repeatedly that an opposition victory could result in social and economic instability in the nation of 29 million people that has a history of tension between majority Malays and minority ethnic Chinese and Indians.
The opposition - a sometimes fractious alliance including a secular ethnic Chinese party and an Islamist party - aims to tap into a growing desire for faster political and economic reform, arguing it is time for a change.
It already runs four state governments and pledges to break down an entrenched network of patronage between the long-dominant ethnic Malay party, the United Malays National Organisation (UMNO), and favored business interests.
Possibly working against Najib and his Barisan Nasional (BN) coalition are three million first-time voters - about 22 percent of the total vote - many of them younger Malaysians.
"The BN still has the advantage in terms of resources, media, money, and machinery," said Ong Kian Ming, an election strategist for the DAP ethnic Chinese opposition party.
"The X-factor we are relying on is the newly registered voters."
Race-based social and economic policies have defined the coalition's rule as it channeled wealth to ethnic Malays, who make up about half of the population, over the economically dominant Chinese minority since 1969 race riots.
The ruling BN coalition will be helped by a skewed electoral system, deep pockets, and about $2 billion in government handouts to millions of poorer Malaysians since the start of 2012. But Najib will likely face a leadership challenge from within UMNO if he fails to improve on the 2008 performance.
Nationalist and conservative forces within UMNO, encouraged by influential former leader Mahathir Mohamad, have looked askance at Najib's steps to roll back colonial-era security and media controls as a sign of weak leadership.
A blossoming civil society and growing middle class are clashing with tight social, media and political controls that have cemented UMNO's half-century rule.
Najib's flagship economic transformation plan, based on hefty public and private investment, has had some initial success but critics say it depends too much on public spending and risks expanding a national debt already at 53 percent of gross domestic product.
A lack of reliable opinion polls makes it difficult to forecast the election outcome.
Few predicted the extent of opposition gains in 2008, which triggered a 10 percent plunge in Kuala Lumpur stocks. Morgan Stanley said in a note on Wednesday that a BN parliamentary seat share of below 55 percent would be seen as a "negative risk event by investors and could have implications for leadership and government stability".
A recent poll by the University of Malaya showed the ruling coalition at 42 percent support compared with the opposition's 37 percent, but with 21 percent of voters undecided.
In February, the independent Merdeka Center showed Najib's approval rating at 61 percent, down 10 points since the end of 2011. His coalition is less popular, polling at 45 percent.
Anticipation of a close election that could cause policy uncertainty has frayed investors' nerves this year and made Kuala Lumpur's stock market one of the worst performers in Asia.
The main KLSE stock index briefly fell more than 3 percent in early Wednesday trade following the announcement that Najib would be holding a television address. It later recovered to trade 0.83 percent lower.
(Additional reporting by Niluksi Koswanage, Amer Hamzah Sheikh al-Zaquan, Yantoultra Ngui; Editing by Ken Wills and Robert Birsel)