Last updated: May 6, 2010 8:52 am

Markets gamble on Tory victory

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Gordon Brown pushes through a throng of people

Tight squeeze: Gordon Brown pushes through the crowd at a shopping centre in Skelmersdale

Financial markets have bet on David Cameron forming a strong Tory government after Thursday’s general election, but the polls still point towards a hung parliament in the most unpredictable contest in a generation.

Polling stations opened across the country at 7am with Mr Cameron clearly ahead in most opinion polls, but Labour believes its vote hardened in the campaign’s final days and that Gordon Brown could yet secure the most seats in the Commons. The same polls also suggested that more than one-third of electors remained undecided as to which party to support.

In spite of the political uncertainty, investors have viewed Britain as a haven from the storms battering the eurozone, amid a growing view that Mr Cameron would win a strong mandate to cut the country’s £163bn deficit.

John Wraith, fixed income strategist at BofA Merrill Lynch Global Research, said: “There are signs that the Conservatives are pulling away in the polls and there are also some haven flows to the UK because of the debt crisis in the eurozone.”

Investors have been switching into gilts, with yields on 10-year UK government bonds – which have an inverse relationship with prices – falling for the fourth trading day in a row to 3.81 per cent, the lowest level since last December.

Although Britain’s deficit is more than 11 per cent of gross domestic product – higher than that of Greece – investors appear to have faith that a strong new government will tackle the problem, but a hung parliament may quickly reverse that sentiment.

Mr Cameron completed a final day of campaigning claiming to have momentum, but conscious that undecided voters might decide not to risk a change. “Don’t let fear triumph over hope,” he said at a Bristol rally.

A YouGov poll for The Sun on Wednesday put the Tories on 35 per cent with Labour and the Liberal Democrats neck-and-neck on 28 per cent. A Times/Populus poll gave Mr Cameron a bigger lead, but still suggested the election would produce a hung parliament.

Mr Brown has surprised some colleagues with the passion of his campaigning over the past week; his final day of electioneering ended in his Fife constituency, with the prime minister declaring himself a “fighter”.

His best hope is to strike a deal with Nick Clegg’s Lib Dems, who have faded in the final straight but still hope for one of their best election performances to date. Polls open this morning but the outcome of the election may not become clear until well into the early hours of Friday morning or later.

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