May 5 (Bloomberg) -- U.K. stocks and bonds rose as Tony Blair's ruling Labour party looked set to win a third term in today's Parliamentary election with enough support to let him build upon 51 successive quarters of economic expansion.

``If there's a reasonable majority, U.K. markets are going to be driven by economic fundamentals and global events, not by politics,'' said Bob Parker, deputy chairman of Credit Suisse Asset Management in London, which manages $335 billion. ``The markets are discounting the status quo.''

The benchmark FTSE 100 Index climbed 0.4 percent to 4902.30. Gains were led by Xstrata Plc and International Power Plc. The 4 3/4 percent 10-year bond rose 0.13 to 101.87, with the yield down 0.02 percentage point to 4.52 percent. The pound added about 0.1 percent against the dollar.

Labour, which has led every opinion poll since the campaign began on April 11, is supported by 37 percent of the electorate, according to a YouGov Plc survey for the Telegraph newspaper today. Voter support for the opposition Conservatives was 32 percent, with 24 percent for the Liberal Democrats.

The FTSE 100 has increased 10 percent since Blair became Prime Minister on May 1, 1997, replacing John Major and the Conservative party. For companies in the benchmark today, gains have been led by Enterprise Inns Plc, the U.K.'s biggest pub landlord, and Man Group Plc, the world's largest publicly traded hedge-fund manager.

The Morgan Stanley Capital International World Index, a global equity benchmark, has added 35 percent in the period. The Dow Jones Euro Stoxx 50 Index, a measure for the 12 countries using the euro, has increased 38 percent.

Clear Result

A clear result for any party will be the best outcome for the U.K. stock market, said Martin Ellis, chief economist at HBOS Plc in London. The worst, he said, would be a so-called hung Parliament, when no party controls a majority of seats.

``The market doesn't like uncertainty or change,'' Ellis said. ``With a hung Parliament, it would be unclear how that's going to pan out in terms of broader economic policy, so that could prove to be quite bad for markets.''

The FTSE 100 pared some of its gain after two explosions outside the building housing the British Consulate in New York shattered windows, the city's police said. No injuries were reported in the blast, which occurred at 3:35 a.m. New York time.

Voters ended up with the only hung parliament since 1929 in 1974. That year was the worst for stocks in almost 40 years, HBOS data show. The FT30 dropped 42 percent in the seven months from Feb. 28, 1974, when Harold Wilson's Labour party beat the incumbent Conservative government by four seats.

Parker Forecast

At the 2001 general election, where 659 members of Parliament were elected, Labour won 41 percent of the vote and 413 seats, the Conservatives 32 percent and 166 seats, and the Liberal Democrats 18 percent and 52 seats.

That gave Labour a 166-seat majority. Spread betting suggests that Blair's majority may halve in this election, with betting firm IG Index offering a spread of 88-94 seats as the size of Labour's majority on the day before the vote.

CSAM's Parker said he expects a today's vote to produce a Labour victory by a reduced majority of between 70 and 100. Stocks and bonds may fall if the majority is reduced to 60 seats or fewer, he said, on concern Blair may be succeeded by Chancellor of the Exchequer Gordon Brown within the next one to two years.

Blair has promised to step aside after a third term. Under Britain's parliamentary system, he can hand over power at any point during the five-year term and be replaced by another Labour member without an election.

Widening Deficits

The FT30 Index of the U.K.'s 30 largest publicly traded companies has dropped 34 percent since July 6, 2001, when Blair began his second term as Prime Minister. That's the sharpest decline for the index during a government administration since 1974, according to HBOS, Britain's biggest mortgage lender. The FT30, which has been calculated since 1935, was the most widely used U.K. benchmark before the FTSE 100 started in 1984.

U.K. deficits have increased since Blair won its second election in 2001 amid higher spending on hospitals, education and transport. The government plans to borrow 34.2 billion pounds ($65.1 billion) this fiscal year.

At the same time, signs point to slowing economic growth as the Bank of England has lifted its key interest rate five times in less than a year, to 4.75 percent, which is the highest in the Group of Seven industrialized nations.

An index of retail sales in April fell the most since 1992, a survey from the Confederation of British Industry on May 3 showed. A separate report showed the country's manufacturing industry contracted for the first time in two years.

``How do they address a widening fiscal deficit in an environment where growth is slowing,'' said Parker, who said he prefers so-called defensive stocks whose earnings are less tied to economic growth, such as drugs companies and utilities.

Cheaper Borrowing

Since Blair took office, borrowing has become cheaper relative to other countries. In the three years prior to Blair becoming Prime Minister, investors charged the U.K. an average of about 1.5 percentage points more to borrow money for 10 years in the bond market than they charged Germany. Since May 1997, the gap between U.K. and German borrowing costs has averaged just 48 basis points.

``We're going to have a continuation of the government policy of recent years, so there aren't great implications for the bond market,'' said John Wraith, head of interest-rate strategy at Royal Bank of Scotland Group Plc in London.

The pound has gained 17 percent against the dollar since Blair's election. The U.K. currency has also appreciated 4.3 percent versus the euro since the common currency was introduced in 1999.

Polling stations open across the country at 7 a.m. and close at 10 p.m. local time. About 44.2 million people are registered to vote in the election for 646 members of Parliament. Exit polls will be aired by the British Broadcasting Corp. and ITV Plc as voting ends.

To contact the reporter on this story: Bryce Elder in London at belder@bloomberg.net.

Last Updated: May 5, 2005 11:59 EDT