* Opposition PDI-P party expected to dominate
* Election expected to help its presidential candidate Jokowi
* Campaign notable for lack of policy initiatives
* Fortunes of Islamic parties on the wane (Adds early exit poll, quotes)
By Kanupriya Kapoor and Fergus Jensen
JAKARTA, April 9 (Reuters) - Indonesians voted for a new parliament on Wednesday in a poll expected to be dominated by the opposition Indonesian Democratic Party-Struggle (PDI-P), boosting the chances of its popular candidate in a presidential election three months from now.
Already, the star of the election is Jakarta governor Joko Widodo, widely known as Jokowi, whom opinion polls suggest will almost certainly be the next president of Southeast Asia's biggest economy.
One early exit poll, issued by CSIS-Cyrus two hours before voting had closed and based on 6,000 voters, showed PDI-P well ahead with 19.85 percent, already close to the threshhold which would allow it to nominate its presidential candidate.
"I'm very confident. My party will do very well," Jokowi said in English after voting with his wife in central Jakarta, according to local news website, Detik.com.
Former president and head of the PDI-P Megawati Sukarnoputri appeared to set aside her own ambition last month when she gave the green light to Jokowi to run for president, recognising that his popularity could lead her party back to power.
Indonesia's embrace of democracy since the downfall of former authoritarian leader Suharto 16 years ago has seen four different presidents and repeated change of the leading party.
Predictions of a Jokowi presidency and strong showing by his party have helped lift shares prices and the rupiah, Asia's best performing currency this year, on expectations that it would bring more decisive government. Analysts say if PDI-P does do well, markets will likely rise further.
The stock market, up 15 percent this year, was closed as Wednesday was declared a public holiday for the vote.
Campaigning has been notable for its lack of policy initiatives to give the economy a boost. Growth is still expected to be a little over 5 percent this year, but has weakened partly on the fall in prices for commodities that still form a backbone for the resource-rich economy.
THIRD LARGEST DEMOCRACY
Voting in the world's third-largest democracy began in Indonesia's distant eastern islands and will finish two time zones away in the densely populated west at 0600 GMT.
There were no reports of any violence, but voting was delayed in some areas due to heavy rains and logistical problems.
Political parties must secure at least 25 percent of the national vote on Wednesday or 20 percent of the 560 seats in parliament to be able to field a candidate in July's presidential ballot. There are only 12 parties running compared with 38 in the last election in 2009.
Much of the debate has shifted already to who might become the vice-presidential candidate with Jokowi, who has no experience on the national political stage.
The two other main parties likely to perform well are Golkar, one-time parliamentary vehicle of the long-serving Suharto, and Gerindra which is led by ex-general Prabowo Subianto.
Both may struggle to meet the threshhold to contest the presidency, suggesting there will be intense horse-trading among smaller parties to form coalitions once results are known.
Golkar leader, business tycoon Aburzial Bakrie, alluded to potential alliances after casting his vote in central Jakarta.
"What's most important is the coalition in parliament and government," he said.
Backing for the ruling Democratic Party of outgoing President Susilo Bambang Yudhoyono has fallen to single digits after it was hit by a series of high-profile graft cases last year. Yudhoyono is limited by the constitution to two terms.
Yudhoyono is Indonesia's first leader to be chosen by direct election.
"Even though we are still fixing and perfecting the system of holding these (elections), once again Indonesia can be grateful because our democratic journey is going the right way," he told reporters.
Islamic parties, which became popular after the fall of Suharto, have also seen their fortunes fade in the world's most populous Muslim nation, hit by corruption scandals and a strong focus on pluralism in mainstream politics. Five Islamic parties are running this time, compared with eight in 2009.
Rather than policy, the colourful mass rallies of the past few weeks offered free merchandise, food and quite often money to those who attended, along with scantily clad singers and dancers who sought to whip up enthusiasm.
Parties also tapped into Indonesia's obsession with social media by launching politically themed apps and online games. Indonesia is home to the world's third-largest number of Facebook and Twitter users.
The election, a $1.5 billion logistical feat, will see more than 186 million voters flock to half a million polling stations across the vast Indonesian archipelago, according to the election commission.
Voters, nearly a third of them under 30, will choose between 6,600 candidates vying for national parliament seats. On the same day, elections will be held for 19,007 provincial and district level legislative assembly seats.
Most Indonesians view parliament as among their country's most corrupt institutions, according to a 2013 Transparency International survey. Under the presidential system, however, the executive branch has the authority to overrule it. (Additional reporting by Anastasia Arvirianty,; Writing by Jonathan Thatcher, Editing by Simon Cameron-Moore)
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