WRAPUP 2-UK markets rally on outright election win for Conservatives
By Patrick Graham and Sudip Kar-Gupta
LONDON May 8 (Reuters) - The pound, British shares and bonds rallied on Friday after Prime Minister David Cameron's Conservative Party won a shock election victory, removing immediate political uncertainty for investors who had expected a hung parliament.
The main FTSE 100 stock index surged towards last month's record high, while sterling chalked up its biggest gain against the euro in years and government borrowing costs fell.
But investors were also eyeing political and constitutional challenges resulting from the vote that have the potential to inflict damage on the British economy and asset prices.
Cameron has pledged to hold a referendum on Britain's membership of the European Union within two years, while the Scottish National Party's landslide victory north of the border may hasten another vote on independence there.
"A good general election result for the UK economy, but not a good day for the United Kingdom," said Richard Buxton, head of UK Equities at Old Mutual Global Investors.
"The scale of the SNP's victory in Scotland, together with the scale of UKIP's share of the national vote at over 12 percent, confirms the extent to which we are an increasingly divided nation."
The populist UK Independence Party, which favours withdrawal from the EU, surged into third place in the countrywide vote tally, although that translated into only a single seat.
Nigel Green, chief executive of deVere Group, said the rally in sterling, shares and bonds might be the calm before the storm, and advised clients to hedge themselves against a fall in the value of these assets due to political uncertainty. Continuación...