Britain faces a national election by June, and senior Conservatives stepped up their attack on Labour's heavy borrowing, which has unsettled markets, the day after sterling suffered its biggest one-day fall in four months.

"There is a danger our creditors will take control of our affairs," opposition business spokesman Ken Clarke said at a Reuters Newsmaker event. "Voters must not elect themselves into a financial crisis."

If elected, the Conservatives have pledged to produce a budget within 50 days to reassure investors about Britain's creditworthiness, and safeguard the country's triple-A sovereign rating, said Clarke, who was finance minister from 1993 to 1997.

"If investors don't believe that a newly elected government has the political will to deal with the deficit and pay down debt, they will demand much higher interest rates before they lend us any money," Clarke said.

Recent opinion polls have shown the Conservatives' lead in the opinion polls narrowing and suggested that Prime Minister Gordon Brown's Labour could yet emerge as the largest party in a hung parliament in which no one wins an outright majority.

Markets fear political deadlock after an inconclusive election could hamper efforts to tackle a budget deficit forecast to exceed 12 percent of GDP. Sterling took a hammering from investors on Monday after the weekend polls.

"Y esterday and today's movements in the markets just show how nervous our foreign creditors and investors are about the prospects of a victory for Gordon Brown or a hung parliament," Clarke said. "If we don't deal with the deficit, interest rates would go up and the pound would be sent on a downward spiral."

DEFICIT DEBATE

Labour has said it will halve the deficit over four years but has ruled out immediate spending cuts because it fears they could kill off a fragile recovery. The Conservatives, out of power since 1997, say they would cut faster and harder.

Speaking at the same Reuters event, Conservative leader David Cameron reiterated that he would move quickly.

"We have a serious plan. We've been absolutely clear we have to make a start on this work in 2010 and get rid of the bulk of the structural deficit within a parliament."

"Protecting the UK's triple-A rating is central to our plans," he added.

Clarke said that Britain's fiscal situation had much in common with that in Greece, which may require a European Union bail-out after markets became increasingly unwilling to fund its budget deficit.

"There are some great similarities: too high a structural deficit -- not particularly out of line with ours -- and people asking odd questions about whether the books are being kept in quite the way they ought to be."

"We may not be next in the queue, but we aren't far enough down the queue and so (Conservative shadow chancellor) George Osborne's budget after 50 days is absolutely critical."

Financial markets were little moved after the Conservatives' comments, with sterling close to Monday's lows against the euro and dollar.

Ten-year gilts had reversed Monday's underperformance versus German government debt before the speeches, after a well received sale of 30-year gilts.

(Writing by Keith Weir and David Milliken, additional reporting by Fiona Shaikh, editing by Patrick Graham and Robin Pomeroy)