UK's third party rebuffs PM's reform overtures

LONDON (Reuters) - Britain's buoyant Liberal Democrats rebuffed on Wednesday an attempt by Prime Minister Gordon Brown to find common ground on political reform and said his move smacked of desperation ahead of a May 6 election.

Brown's ruling Labor, in power for 13 years, and the main opposition Conservatives have been trying to stem a surge in Lib Dem popularity following Britain's first televised leaders' debate last week.

Lib Dem leader Nick Clegg's assured performance strengthened pollsters' forecasts of a hung parliament where no one party can muster a majority. Wednesday's polls were mixed, but most had the centrist Lib Dems in second place behind the Conservatives, pushing Labor into third.

Speaking to the Independent newspaper, Brown sought to cast Labor as the agents of "new politics," highlighting his party's pledge to hold a referendum on voting reform if it won the election.

Brown's comments could be seen as an attempt to woo the Lib Dems, but Clegg dampened hopes of a "Lib-Lab" alliance when he said Labor had failed to deliver on electoral reform and could not be trusted to do so in the next parliament.

The Lib Dems, long Britain's third party, have campaigned for political reform to a first-past-the-post voting system that favors the two larger parties.

"I think there is something frankly desperate about a Labor Party and their leader Gordon Brown who now tries to present themselves as agents of reform and progress when for 13 years they have been a stubborn block on reform," Clegg told reporters.

MARKET WORRIES

Markets are concerned a hung parliament will be too weak to tackle Britain's record budget deficit.

"It is really uncharted territory for the UK," said Philip Shaw, chief economist at Investec.

"It's interesting that sterling is at a higher level than it was a few weeks ago despite the chance of a hung parliament.

"Perhaps it's showing markets are taking some comfort that there is perhaps a smaller risk that a minority Labor government might soldier on regardless." Britain last had an inconclusive election in 1974.

The Conservatives said a hung parliament would be unstable, hurt the economy and rattle bond markets.

"I don't think people should underestimate the economic consequences of political instability in this country," said finance spokesman George Osborne.

The party's business spokesman Ken Clarke said he "did not think the bond markets will wait for the discussions and the horse-trading."

Sterling hit a two-month high against the euro on Wednesday on hopes for economic recovery after the publication of jobless data.

The number of Britons claiming unemployment benefit fell three times faster than expected in March, but a broader measure of unemployment rose to a 14-year high of 8.0 percent.

Brown, Conservative leader David Cameron and Clegg will clash again on Thursday evening in the second of three live televised debates. Clegg can expect a rough ride from his two rivals who are keen to put him in his place.

Academic Philip Cowley, professor of parliamentary government at the University of Nottingham, told Reuters: "It's perfectly normal in European politics for parties to slag each other off for the weeks of the campaign and then come together at the end to do a deal."

(Additional reporting by Caroline Copley)