Socrates, 52, won about 38% of the vote, according to the polls, cutting his share of the ballot from 45% in 2005, which had given him a solid absolute majority in parliament during his first term.
SIC television projected the result would give the Socialists between 99 and 103 seats in the 230-seat parliament.
"If these projections are confirmed, the Socialists were victorious," Social Security Minister Jose Vieira da Silva said in a televised speech shortly after exit polls were released.
The centre-right Social Democrats under Manuela Ferreira Leite, 68, who had campaigned for vigorous public sector spending cuts, looked to have gained around 29 percent of the vote, virtually unchanged from 2005.
The Left Bloc appeared to be the biggest gainer from the last election, rising to 10% from 6.3% in 2005.
Socrates will not only have to repair the economy after its deepest recession in decades but also rectify the long-term economic weaknesses that caused it to underperform its European partners in the past decade. Unemployment is at 9.1% and rising, its highest since the 1980s.
The exit poll results, which were in line with opinion polls ahead of the election, set out a potentially tough task for Socrates as he considers whether to enter into a coalition or rule in a minority government.
He is most likely to opt to rule on his own, seeking support on a case-by-case basis on different legislation, analysts said. Former Socialist Prime Minister Antonio Guterres ruled as head of a minority government for a full term from 1995-99.
"After an absolute majority, this is the second-best scenario for the Socialists, as, according to exit polls, they would be able to negotiate approval of their bills with any other party on an individual basis," political scientist Pedro Magalhaes told Reuters.
That could include the Socialists working with the Social Democrats on issues such as public finance and the 2010 budget.
With the deficit set to reach 5.9% of gross domestic product this year, the budget is likely to need spending cuts or tax hikes.
On other matters, such as social reform, the Socialists may turn to left-wing parties. Socrates, like the left, sees a bigger government role in the economy, with projects to create jobs.
But analysts doubted any kind of formal coalition government was likely.
"A coalition scenario is not impossible, but would be very difficult as left-wing parties have no incentives to ally with the Socialists, being ideologically very distant," said Magalhaes.
"An alliance with [the right-wing] CDS-PP would cause a lot of dissatisfaction within the Socialist party," he said.
Still, Filipe Garcia, an economist at Informacao de Mercados Financeiros, said the Socialists' victory gave their policies legitimacy.
This year the economy is expected to contract by up to 4%.
(EurActiv with Reuters.)
