KUALA LUMPUR (Thomson Financial) - Malaysian shares closed lower on Tuesday after a one-day trading break as political concerns dampened sentiment, driven with investors selling blue chips and other big-cap stocks.

Malaysian markets were closed on Monday for a public holiday, during which the son of Mahathir Mohamad said the former Malaysian prime minister has quit the ruling party, UMNO, in protest over the leadership of his successor Prime Minister Abdullah Ahmad Badawi.

Mahathir has also called on other party members to follow his lead and resign.

Gains in select palm oil stocks helped offset losses elsewhere in the market on expectations that prices of crude palm oil (CPO) will remain strong, in line with rising global crude oil prices.

Light, sweet crude rose 76 cents to settle at a record $127.05 per barrel on the New York Mercantile Exchange overnight. In afternoon trade in Asia, oil rose a further 29 cents to $127.34 per barrel.

CPO prices track crude oil prices because CPO can be used as feedstock to produce biodiesel.

The Kuala Lumpur Composite Index (KLCI) fell 13.24 points or 1.0 percent to close at 1,287.43, off a high of 1,301.94 and a low of 1,285.20.

The FTSE Bursa Malaysia 30-large cap index lost 87.57 points or 1.0 percent at 8,311.63 while the FTSE Bursa Malaysia second board index was down 106.45 points or 1.8 percent at 5,769.41.

Decliners overwhelmed advancers 588 to 168, with 197 stocks unchanged and 465 untraded.

Trading volume was 652 million shares, valued at 1.6 billion ringgit.

'Political concerns are dragging the market down, but a knee-jerk reaction to what's happening is making the fall sharper today,'' said N. Kaladher, head of research at TA Securities. 'People are worried about the potential fallout from Mahathir's resignation,'' he said, referring to the possibility that other elected representatives from UMNO may follow suit and resign from the party.

'We are looking at a downtrend until this thing settles down,'' Kaladher said.

'The Malaysian market is grappling with the unravelling of local politics,'' said Phua Kwee Hock, an analyst at SJ Securities. 'Expect a shift in focus over the next few months to local political issues.''

The ruling political coalition, Barisan Nasional (BN), suffered its worst electoral defeat at the March 8 election when it lost four states to the opposition as well as its two-thirds majority in parliament. Mahathir has since led calls for Prime Minister Abdullah to step down.

UMNO is the main party in Barisan National.

In Tuesday's trade, select blue chips led the fall. British American Tobacco topped the decliners' list, falling 2.3 percent to 42.50 ringgit, while diversified conglomerate Tanjong plc tumbled 3.6 percent to 16.20 ringgit.

Select plantation stocks led gainers, but plantation majors put in a mixed performance, with Sime Darby, the largest palm oil producer in Malaysia, losing 0.5 percent at 9.65 ringgit, while IOI Corp, the second-largest plantation stock on the local bourse, finished unchanged at 7.50 ringgit.

Kuala Lumpur Kepong, another plantation heavyweight, climbed 1.1 percent to 17.90 ringgit while midcap Asiatic advanced 1.2 percent to 8.55 ringgit.

Select cement producers rose, benefiting from a media report that the government may review the price caps on cement following the recent lifting of price ceilings for steel products.

Lafarge Malayan Cement, one of the largest cement manufacturers in Malaysia, added 0.9 percent to 4.72 ringgit, while Gopeng Bhd rallied 8.7 percent to 0.94 ringgit.

Among index heavyweights, national power company Tenaga ended down 1.4 percent at 6.85 ringgit, Maybank, the largest bank by assets in Malaysia, lost 1.3 percent at 7.80 ringgit and Telekom Malaysia tumbled 3.4 percent to 3.38 ringgit.

The ringgit closed at 3.2430/2450 while the three-month interbank rates stood at 3.61/62 and overnight rates were at 3.48/50.

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