By Huseyin Hayatsever and Jonathan Spicer
ANKARA (Reuters) -President&nbsp;Tayyip&nbsp;Erdogan&nbsp;led&nbsp;comfortably in the first round of&nbsp;Turkey's&nbsp;election&nbsp;on Monday, with&nbsp;his&nbsp;rival&nbsp;facing an uphill struggle to prevent him&nbsp;extending&nbsp;his&nbsp;rule&nbsp;into a third decade in a&nbsp;runoff&nbsp;vote&nbsp;on May 28.
Turkish assets weakened on the news, which showed&nbsp;Erdogan&nbsp;just below the 50% threshold needed to avoid sending the&nbsp;NATO-member&nbsp;country&nbsp;to a second round of a&nbsp;presidential&nbsp;election&nbsp;viewed as passing judgment on&nbsp;his&nbsp;autocratic&nbsp;rule.
Erdogan's People's Alliance, comprising&nbsp;his&nbsp;Islamist-rooted AK Party and its nationalist partners, also appeared set to win a&nbsp;majority&nbsp;in the new parliament with 321 of the 600 seats, further boosting&nbsp;his&nbsp;chances in the&nbsp;presidential&nbsp;runoff.
"The winner has undoubtedly been our&nbsp;country,"&nbsp;Erdogan&nbsp;said in a speech to cheering supporters at the headquarters of&nbsp;his&nbsp;ruling Islamist-rooted AK Party in the capital Ankara&nbsp;overnight.
Before&nbsp;Sunday's&nbsp;election, the&nbsp;opposition&nbsp;had sensed its best chance yet of unseating&nbsp;Erdogan, bolstered by polls showing him trailing&nbsp;his&nbsp;main challenger&nbsp;Kemal&nbsp;Kilicdaroglu. But the results suggested that&nbsp;Erdogan&nbsp;and&nbsp;his&nbsp;AK Party had been able to rally conservative&nbsp;voters despite a cost-of-living crisis.
Kilicdaroglu, head of a six-party alliance, vowed to prevail in the&nbsp;runoff&nbsp;and accused&nbsp;Erdogan's party of interfering with the counting and reporting of results. He called&nbsp;on&nbsp;his&nbsp;supporters to be patient, but they were downcast on Monday.
"We are sad, we are depressed about the whole situation. We expected different results," said commuter Volkan Atilgan as he sat near a ferry station in Istanbul. "God willing, we will win this&nbsp;victory in the second round."
By contrast,&nbsp;Erdogan&nbsp;supporters were jubilant as the results filtered out, with cyber security engineer Feyyaz Balcu, 23, confident that&nbsp;Erdogan&nbsp;could fix&nbsp;Turkey's economic woes.
"It is very important for all Turkish people that&nbsp;Erdogan&nbsp;wins the&nbsp;elections. He is a world leader and all the Turks and Muslims want&nbsp;Erdogan&nbsp;as&nbsp;president," he said.
PIVOTAL&nbsp;ELECTIONS
With 99% of ballot boxes counted,&nbsp;Erdogan&nbsp;led&nbsp;with 49.4 of&nbsp;votes and&nbsp;Kilicdaroglu&nbsp;on 44.96%, High&nbsp;Election&nbsp;Board chairman Ahmet Yener told reporters. Turnout was a very high 88.8%.
The third candidate, nationalist Sinan Ogan, took 5.2% of the&nbsp;vote&nbsp;and analysts said he could play a "kingmaker" role in the&nbsp;runoff&nbsp;if he decides to endorse one of the two.
The prospect of&nbsp;Erdogan's&nbsp;rule&nbsp;entering a third decade will upset civil rights activists campaigning for reforms to undo the damage they say he has done to&nbsp;Turkey's democracy.
Thousands of political prisoners and activists could be released if the&nbsp;opposition&nbsp;prevails.
Stocks&nbsp;fell, the lira was near a two-month low, sovereign dollar bonds&nbsp;fell&nbsp;and the cost of insuring exposure to&nbsp;Turkey's debt spiked. Analysts voiced concern about the uncertainty and lessening prospects of a return to economic policy orthodoxy.
"Erdogan&nbsp;has now a clear psychological lead against the&nbsp;opposition," said Teneo co-president&nbsp;Wolfango Piccoli. "Erdogan&nbsp;will likely double down on&nbsp;his&nbsp;national security focused narratives&nbsp;over&nbsp;the next two weeks."
Echoing that view, Galip Dalay, associate&nbsp;fellow at Chatham House, said: "During the campaign period ahead of the&nbsp;runoff,&nbsp;President&nbsp;Erdogan&nbsp;is likely to emphasise stability as he already retains the&nbsp;majority&nbsp;in the parliament."
The&nbsp;election&nbsp;has been closely watched in Europe, Washington, Moscow, and across the region, where&nbsp;Erdogan&nbsp;has asserted Turkish power while strengthening ties to Russia and putting strain on Ankara's traditional alliance with the United States.
Erdogan&nbsp;is one of&nbsp;President&nbsp;Vladimir Putin's main allies and&nbsp;his&nbsp;strong showing is likely to encourage the Kremlin but unnerve the Biden administration, as well as many European and Middle Eastern leaders who had troubled&nbsp;relations with&nbsp;Erdogan.
SUBDUED&nbsp;OPPOSITION
The political uncertainty is expected to weigh on financial markets&nbsp;over&nbsp;the next two weeks.&nbsp;Overnight the lira hit a new two-month low against the dollar, weakening to 19.70 before edging back to 19.645 by 0600 GMT.
The cost of insuring against&nbsp;Turkey&nbsp;defaulting on its sovereign debts surged to a six-month high, jumping 105 basis points (bps) from Friday's levels to 597 bps, according to S&amp;P Global Market Intelligence.
The mood at the&nbsp;opposition&nbsp;party's headquarters had been subdued&nbsp;overnight as the&nbsp;votes were counted. Before the&nbsp;election, opinion polls had put&nbsp;Kilicdaroglu&nbsp;slightly ahead, with two polls on Friday showing him above the 50% threshold.
The&nbsp;opposition&nbsp;had expected to benefit from&nbsp;voter anger at economic woes&nbsp;after&nbsp;an unorthodox policy of low interest rates triggered a lira crisis and soaring inflation. A slow government response to earthquakes that killed&nbsp;50,000 people in February had also been expected to influence&nbsp;voters.
Kilicdaroglu&nbsp;has pledged to revive democracy&nbsp;after&nbsp;years of state repression, return to orthodox economic policies, empower institutions that lost autonomy under&nbsp;Erdogan&nbsp;and rebuild frail ties with the West.
Critics fear&nbsp;Erdogan&nbsp;will govern ever more autocratically if he wins another term. The 69-year-old&nbsp;president, a veteran of a dozen&nbsp;election&nbsp;victories, says he respects democracy.
(Reporting by Mehmet Emin Caliskan, Jonathan Spicer, Can Sezer, Ezgi Erkoyun, Karin Strohecker;Writing by Daren Butler;Editing by Tom Perry and Gareth Jones)

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Turkey faces election runoff, Erdogan seen with momentum