* British election results show government losing majority
* Politics in turmoil with Brexit talks to begin in 10 days
* Pound falls to two-month low around $1.2689 in erratic
* Gilts edge up on unexpected uncertainty, FTSE resilient
* Wall St weathers Comey testimony; ECB strikes dovish note
By Wayne Cole
SYDNEY, June 9 Sterling spiralled lower on
Friday as British elections left no single party with a clear
claim to power, sideswiping investors who had already weathered
major risk events in the United States and Europe.
With the majority of seats counted in the snap vote, British
Prime Minister Theresa May had no way to win an outright
majority in parliament.
The shock outcome saw the pound shed 2 percent on fears the
political turmoil could delay and confound talks on leaving the
European Union, which are due to start in less than two weeks.
Yields on 10-year gilts fell 3 basis points to
1.00 percent, but FTSE futures recouped early losses and
turned 0.2 percent higher, perhaps on hopes that a weaker pound
would help the economy.
The damage was limited elsewhere, with E-mini futures for
the S&P 500 edging up 0.1 percent.
Japan's Nikkei added 0.5 percent and MSCI's broadest
index of Asia-Pacific shares outside Japan were
all but flat.
"This is messy for the UK economy and its Brexit
negotiations and hence is a negative for the pound and share
market," said Shane Oliver, chief economist at AMP.
"But the UK is just 2.5 percent of world GDP and it's hard
to see significant implications for global investment markets."
By 0555 GMT sterling had skidded to $1.2697, having
carved out a two-month trough of $1.2689. It was also down 1.8
percent on the euro at 88.18 pence.
The rot started when an exit poll showed the ruling
Conservatives could fail to win a clear majority when markets
had expected a handy victory.
The BBC forecast the Conservatives would hold a reduced 318
seats in the 650-member parliament, following a big swing to the
left-leaning opposition Labour Party. For the latest updates,
Betting agencies were already taking wagers on whether May
would still have her job by the end of the day.
"At this stage, there is no obvious way a formal, stable
coalition government can be constructed, and therefore there is
a high likelihood of a potentially prolonged period of
uncertainty over who will be prime minister," said John Wraith,
a strategist at UBS.
Yet he cautioned bears against chasing the pound much lower
"Today's result will in part be seen as a vote against a
definitive break from the EU, and the market may soon begin to
reassess the probability of a so-called 'hard Brexit'."
There was much less drama elsewhere, as the Japanese yen
gave up early gains and eased to 110.20 per dollar. The
euro was little moved against the U.S. dollar at $1.1209.
The single currency had slipped overnight when the European
Central Bank cut forecasts for inflation and said it had not
discussed scaling back its massive bond-buying campaign, sending
bond yields to multi-month lows.
NO SMOKING GUN
Overnight, Wall Street had seemingly judged the testimony of
former FBI director James Comey was not life-threatening to the
administration of President Donald Trump.
Comey accused Trump of firing him to try to undermine the
investigation into possible collusion by his campaign team with
Russia's alleged efforts to influence the 2016 election.
"I think the market is taking less of an alarmist review of
this situation because there is no smoking gun here," said
Jefferies & Co money market economist Thomas Simons.
"So it's not particularly impactful for thinking about...
Trump's economic agenda to go through."
The Dow rose 0.04 percent, while the S&P 500
gained 0.03 percent and the Nasdaq Composite 0.39
In commodity markets, spot gold was 0.3 percent lower
at $1,274.45 an ounce.
Oil prices remained subdued with Brent having settled at its
lowest since Nov. 29, the eve of an OPEC production cut deal.
U.S. crude futures edged down 2 cents to $45.62 a
barrel, with Brent crude flat at $47.86.
(Editing by Kim Coghill)