* Conservative Clarke: danger for pound if Labour wins poll
* Labour says Clarke talking down pound for political gain
* Conservative lead over ruling Labour has narrowed
(Adds Cameron, paragraphs 7-8; Labour reaction, 12)
By David Milliken
LONDON, March 2 (Reuters) - Britain's opposition Conservatives said on Tuesday a victory for the ruling Labour Party in an upcoming election would tip sterling into a "downward spiral" and push the cost of borrowing higher.
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, a former finance minister, 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. This would reassure investors about Britain's creditworthiness and safeguard its 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.
Party leader David Cameron, who will become prime minister if the Conservatives win, had a similar message on the deficit.
"I believe that credibility would be reinforced by some early action on the deficit," he told Reuters in an interview.
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.
"DOWNWARD SPIRAL"
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 opinion polls.
"Yesterday 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."
In response, Labour accused Clarke of talking down sterling to boost his party's chances. "It's desperate politics, reckless economics and about as unpatriotic as it gets," Liam Byrne, Labour's Chief Secretary to the Treasury, said in a statement.
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.
Clarke said Britain's fiscal situation had much in common with that in Greece, which may need 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 finance spokesman) George Osborne's budget after 50 days is absolutely critical." (Writing by Keith Weir and David Milliken, additional reporting by Fiona Shaikh and Estelle Shirbon; Editing by Charles Dick)