Mexico entered an electoral crisis today after two candidates declared victory in presidential elections that vote-counting officials said were too close to call.

Moments after the Federal Electoral Institute (IFE) said that a vote-by-vote recount would be necessary to determine Mexico's next president, Felipe Calderon, the conservative candidate of the ruling National Action Party, and Andres Manuel Lopez Obrador, the leftist, former mayor of Mexico City, both said they had won.

"We have no doubt that we have won the presidential election," Señor Calderon told supporters after a night of growing tension in Mexico City, which prompted the outgoing president, Vicente Fox, and the head of the IFE to appear on television, urging both sides to respect the electoral process.

"Smile: we’ve already won," Señor Lopez Obrador told cheering members of his Democratic Revolution Party in the city's Zocalo plaza.

Mexican newspaper headlines described the stalemate: "Fighting vote by vote," reported El Universal, the country's best-selling broadsheet. "And the winner is..." said Reforma.

According to a preliminary count of more than 30 million ballots, the two candidates are separated by fewer than 300,000 votes.

With a count from 95.7 per cent of polling places, Señor Calderon is hanging on to a narrow lead, with 36.47 per cent to Señor Lopez Obrador’s 35.42 per cent. Roberto Madrazo, of the Institutional Revolutionary Party, which ruled Mexico for 70 years until 2000, trails in third place, with around 20 per cent.

Results from simultaneous parliamentary elections gave a narrow lead to Señor Calderon's National Action Party in both the lower house and the Senate.

The closeness of the election prompted the IFE to order a vote-by-vote recount, which will take several days to complete. In the mean time, Señor Fox, standing down after six years as President, told the candidates: "It's the responsibility of all political actors to respect the law."

But there are fears that after two years of vicious, vitriolic campaigning which has exposed Mexico's class differences and pitted Señor Lopez Obrador, a proponent of economic reform for the poor, against Señor Calderon, widely considered to be candidate of the establishment, that neither side will accept defeat.

Demonstrations are expected in Mexico City and Oaxaca, two strongholds of support for Señor Lopez Obrador, should the result go against him. And last night, even as he declared victory, the former mayor whose campaign was supported by the outspoken Venezuelan President, Hugo Chávez, hinted at suspicions of vote-rigging and his intention to contest any dispute:

"We’re going to defend our triumph. We aren’t going to let them try to make our results disappear," he told his supporters, who chanted in return: "Lie! Lie! Fraud! Fraud!"

Financial markets stuttered in the uncertainty, with the peso falling 1.5 per cent to 11.48 against the dollar in after-hours trading before recovering. Analysts said that a prolonged electoral crisis was the "nightmare scenario" but also expressed concerns about the economic plans of Señor Lopez Obrador, who has said he intends to increase public spending and cut energy prices.

"The fact that the vote has turned out to be so close raises the question as to whether the ’nightmare scenario’ envisaged by some commentators - of a disputed vote resulting in violent protests - could now materialise," said Neil Dougall, an analyst for Dresdner Kleinwort.

"It will be very important in the next two days that both Lopez Obrador and Calderon moderate their positions to avoid inflaming the political atmosphere," said Francisco Rivero, an analyst for Santander in a report.

The crisis will be a huge test for Mexican democracy, which was undermined for decades by rigged elections that guaranteed victory for the successive presidents of the Institutional Revolutionary Party. In 1988, purported computer crashes managed to deliver power to Carlos Salinas, despite broad public support for the populist candidate, Cuauhtemoc Cárdenas.

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