Peter Greste in Panama City: Panama's first ever period of genuine independence

She will be in charge when America hands over the canal zone to Panamanian control at the end of 1999.

Ms Moscoso, the opposition candidate, beat her rival, Martin Torrijos by a margin of 6.3%, according to Panama's Electoral Tribunal.

Mr Torrijos is the son of the military ruler who overthrew President Arias' government in 1968.

Peter Greste: One man wore a Moscoso teeshirt and Torrijos baseball cap!

The personalities and legacies of Mr Arias and General Omar Torrijos have loomed large in the elections, particularly as there was little to separate the policies of their successors.

Polling ended at 1600 local time (2100 GMT) with no significant incidents reported.

Voter turnout was estimated at between 70% and 75% of the country's 1.7 m voters.

Cheers for Moscoso's vote on Sunday morning

With about half the votes counted at 2100, it was reported that Ms Moscoso had about 42% of the vote, while Mr Torrijos had about 39%.

Ms Moscoso voted early in the morning surrounded by a crowd of opposition Arnulfista party members, who chanted their support outside a polling station in a run-down part of Panama City.

Mr Torrijos, of the ruling Democratic Revolutionary Party, attended an early morning mass with his wife before going to vote at the upper class Belisaria Boras school.

The two candidates appeared to be very close in opinion polls before the elections, while a third candidate, Alberto Vallarino, trailed there other two.

US pullout

Correspondents say this a crucial election for Panama, coming as the US prepares to withdraw its military presence from the country and hand over administration of the 80 km canal linking the Atlantic and Pacific oceans.

Torrijos waves to supporters of ruling party

The canal and the 15km wide zone which it passes through will be handed over on 31 December 1999 in a deal agreed between US President Jimmy Carter and General Torrijos in 1977.

The leading candidates both promised to battle poverty, improve education and provide more jobs; and they both claimed they would guarantee competent and uncorrupt running of the canal.

US military withdrawal also means thousands of Panamanian workers will lose jobs at US bases being vacated in December.

Outgoing President Perez Balladares tried to change the constitutional bar on presidents seeking a second consecutive term last August, but the proposal was overwhelmingly rejected in a popular referendum.