(In Jan 28 story, corrects deficit in the fourth paragraph to 12 percent of gross domestic product from 112 percent)
* Economists see 20 pct chance hung parliament vs 15 in Oct
* Already a factor undermining the pound, gilts
* Few now expect overwhelming Conservative majority
By Peter Apps, Political Risk Correspondent
LONDON, Jan 28 (Reuters) - Economists see a growing prospect of a hung parliament in Britain's election this year leaving no one party in overall control, a Reuters poll showed on Thursday, putting the likelihood at 20 percent.
That compared to 15 percent in a similar poll published on October 30. Since then, a string of opinion polls have shown the opposition Conservative lead narrowing from some 17 points to 9-13 this month.
The poll of over 30 financial market analysts, saw a 68 percent chance of an outright Conservative victory, down from 75 percent in October. The probability of a surprise Labour outright victory was seen unchanged at 10 percent.
Markets and credit ratings agencies say Britain must swiftly address a deficit set to top 12 percent of GDP this year. At worst, a hung parliament could prompt ratings downgrades, a currency slump and a bond yields spike that would make it pricier for Britain to borrow.
Britain has not seen a hung parliament since the 1970s. Investors worry it could produce paralysis and new elections, delaying cuts and frustrating policy-making.
That worry has been a factor in a fall in the pound-- although it has staged a recent recovery and is now down 1.6 percent since October 30.
FEWER EXPECT LANDSLIDE
The cost of insuring Britain's debt in the credit default swaps market has also risen sharply to around 80 basis points compared to 66 in October, meaning it would cost some 80,000 pounds to protect 10 million pounds of five-year debt against default -- twice the cost for France.
Stock markets have been less affected, partly because roughly two thirds of earnings of FTSE 100 companies come from outside Britain. Local politics and even economic factors have less of an impact.
Because of inbuilt imbalances in Britain's electoral system, the Conservatives need a more than nine-point lead to have an overall parliamentary majority. Otherwise, they would need the support of other parties to help push through legislation and avoid no-confidence votes.
The first past the post constituency-based system means that deciding between a hung parliament or a small majority government could come down to hundreds or even tens of votes across dozens of marginal constituencies.
"It makes Britain one of the most unpredictable elections this year," said Eurasia Group analyst Jon Levy.
In October, the basic assumption of markets, analysts, pollsters and pundits was that 2010 would deliver something approaching a Conservative landslide. The October poll put a 48 percent chance of a Conservative win greater than Labour's current working majority of 62, with a 28 percent chance of a smaller majority.
That assumption has been swept away. The latest poll shows a 50 percent chance of a Conservative majority of less than 63, with an 18 percent chance of one larger.
Analysts say a small Conservative majority -- for example less than 20 MPs -- could also prove potentially unstable, risking imploding over relations with the European Union as well as potentially Britain's ongoing war in Afghanistan.
All percentages are rounded to the nearest whole number.
The poll was collected alongside a poll on Bank of England interest rates moving at 1230 GMT. (Polling by Bangalore Polling Unit; editing by Ralph Boulton)