* Sterling falls to 10-mth low vs dlr, hit by UK poll woes
* Pound hurt as UK's Prudential to buy AIG's Asia operations
* Cable selling accelerates after technical levels broken
By Tamawa Desai
LONDON, March 1 (Reuters) - Sterling tumbled more than four cents to a 10-month low against the dollar on Monday as a poll indicating an upcoming election would produce a hung parliament highlighted the outlook for Britain's public finances.
A weekend poll suggested a general election to be held by June would result in no one party gaining a clear majority, hindering a new government from effectively dealing with bringing down the budget deficit.
The pound was also under pressure after Britain's Prudential agreed to buy AIG's Asian life insurance arm, boosting speculation the UK firm would need to sell pounds for dollars to pay for the $35.5 billion purchase, of which $21 billion would be in cash.
Sterling's losses accelerated as it tripped through key technical levels, marking its biggest one-day percentage fall in a year, before regaining some of the lost ground.
By 1714 GMT, the pound was down 1.7 percent at $1.4993, after falling to $1.4781, its lowest since early May last year.
"Sentiment on sterling is very bad at the moment. Given half a chance, people will just sell it," said Paul Robinson, chief sterling strategist at Barclays Capital in London. "I can't see anything changing sterling's prospects in the short run."
Against the euro, sterling fell to a four-month low of 91.50 pence, and was poised to clock its largest daily percentage loss since late October 2009. The euro was last up 1.0 percent at 90.17 pence. Trade-weighted sterling fell to 76.5, the lowest since late March 2009, according to BoE data.
For a technical outlook on sterling, see.
Sterling has gradually declined on mounting concerns about the fiscal deficit -- forecast at 12 percent of GDP this year and close to that of Greece -- a sluggish economic recovery and political uncertainty, falling some 10 percent since December.
The pound brushed aside data showing an improvement in manufacturing activity while mortgage activity data was mixed.
Some in the market said that with signs Greece might be nearing a deal with European Union governments to ease its deficit problem, speculators could target Britain.
UK gilt futures fell to four-day lows on Monday, underperforming German Bunds. Bank of England data showed foreign investors sold more gilts net in January than at any time since April 2009. Domestic investors were net buyers.
Data last Friday showed currency speculators increased their bets sterling will depreciate. For a graphic on sterling positioning, click
http://graphics.thomsonreuters.com/310/UK_STCFTC0310.gif
HUNG PARLIAMENT
Analysts said the biggest drag on sterling was a Sunday Times/YouGov poll showing the ruling Labour party may win more seats in parliament even if the opposition Conservatives win more of the popular vote.
Earlier polls had shown the Conservatives would win most seats in a hung parliament but their lead has been shrinking.
Ratings agencies have flagged concerns about Britain's fiscal prospects and the possible impact on its AAA rating.
"With a hung parliament, the market would believe that any ideas of a credible medium-term deficit reduction would get bogged down in the detail, and the ratings agencies wouldn't give them much time," said Gavin Friend, currency strategist at nabCapital.
For an analysis on the stock market impact of a hung parliament, see
Sentiment toward the pound deteriorated last week after the Bank of England said it stood ready to re-start its programme of buying assets to boost the economy if conditions warranted.
The BoE is expected to make no change to policy at a meeting later this week, with all but one of 62 economists polled by Reuters forecasting the central bank would keep its quantitative easing programme on hold.
The pound also hit a one-year low against the yen of 132.07 yen, while it fell to its weakest in 25 years against the higher-yielding Australian dollar.
(Additional reporting by Naomi Tajitsu and Jessica Mortimer)