Conservatives won the most seats in parliament on Friday but failed to gain an overall majority, creating uncertainty over who will lead a country facing huge economic problems.

Asset prices crumbled as the prospect of the first inconclusive election result since 1974 unnerved investors already spooked by a global equity market sell-off.

With results in 615 constituencies declared, the Conservatives were on 290 and could not get to the figure of 326 needed for an outright majority in parliament.

Conservative leader David Cameron said the Labour party had 'lost its mandate to govern.'

However, Prime Minister Gordon Brown has the right under the constitution to try to form a government first, potentially opening the door to a period of political horse-trading.

Senior Labour minister Peter Mandelson said he did not expect Brown to resign Friday. He said he was ruling nothing in or out, and he and others in the party appeared to be wooing the Liberal Democrats.

'I don't think it would help matters if he (Brown) were suddenly to step aside,' Mandelson said.

However, Labour, could struggle to form a coalition with the Lib Dems since their combined forecast seats would still be short of an overall majority.

The Conservatives could seek a pact with smaller parties from Northern Ireland, Scotland or Wales to boost their support.

The prospect of a 'hung parliament' rocked already febrile financial markets.

The pound tumbled, the top share index extended this week's rout and gilt futures went into reverse as the inconclusive election outcome unnerved investors jittery about Europe's mounting debt crisis.

'The net result is masses of uncertainty. The new government is likely to be weak at best,' said Alan Clarke of BNP Paribas.

'Even in the case of a coalition, the partners will be constantly looking over their shoulders, and compromise politics will mean that the scope for delivering radical or unpopular fiscal tightening is limited.'

Clarke said there was now a growing threat of a credit ratings downgrade for Britain, where the deficit is running at more than 11 percent of national output.

'Ahead of the election we saw the risk of downgrade at close to 50 per cent. On the basis of the election outcome as it looks now, a downgrade looks to be the most likely outcome,' he said.

The focus switches Friday to possible talks between the parties to break the deadlock. They will be assisted by civil servants who have prepared briefing documents outlining key elements of party proposals and their costs.

Britain does not have the same tradition of coalition building as its neighbours in continental Europe, and few Britons can remember the last inconclusive election almost four decades ago.

The sense of confusion was heightened by reports that hundreds of voters had been turned away from crowded polling stations across the country when voting ended at 10 p.m.

The Conservatives were forecast to win around 305 seats and Labour 255 in the House of Commons. The Lib Dems were a distant third, with an expected 61.

The BBC calculated that the Conservatives had taken 36 percent of the vote, Labour 29 percent and the Lib Dems 23 percent.

Notable losses for Labour included former cabinet ministers Charles Clarke and Jacqui Smith. Northern Ireland's first minister, Peter Robinson, of the Democratic Unionist Party, was the highest-profile casualty of the night. Gainers included the Greens, who won their first ever parliamentary seat.

Independent think-tanks have accused all the parties of failing to be open with voters about the scale of cuts that will be needed to restore public finances, meaning any government could face a rapid plunge in popularity once cuts begin.-Reuters