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Britain's Conservatives and Liberal Democrats said they made progress on Monday at talks to reach a power-sharing deal after an inconclusive election that has left markets looking for a swift end to political deadlock.Spokesmen for the two parties refused to comment on a Sky News report that they have reached an "outline deal" that will be put to their members of parliament on Monday.David Cameron's centre-right Conservatives and the smaller centre-left Lib Dems gave no more details of their latest attempt to thrash out a deal that could lead to Britain's first collaborative government since the 1970s.The talks centre on the best way to rebuild the economy after the worst recession since World War Two and cut a record budget deficit, party figures said over the weekend."We have made further progress," said William Hague, chief negotiator for the Conservatives. "We are now going to report back to David Cameron and have meetings with our parliamentary colleagues."Liberal Democrat negotiator Danny Alexander said "good progress" had been made, but refused to say whether the two sides were close to an agreement.Gordon Brown, whose Labour Party has ruled Britain since 1997, remains prime minister while the negotiations continue and still hopes he can woo the Lib Dems and hold on to power.The Conservatives won the most seats in the election, but fell 20 seats short of a majority in the 650-member parliament. They want the support of Nick Clegg's third-placed Lib Dems, possibly in a formal coalition or a looser power-sharing deal.The two parties, which disagree on electoral reform, immigration and Britain's ties with the European Union, have limited time to reach an agreement.While financial markets were focused on the EU and International Monetary Fund's rescue package to stop the Greek debt crisis from spreading, they will want Britain's uncertain political situation to be clarified in the next few days."The market's patience over the UK political situation will only last for a limited time," said Howard Archer, chief UK economist at IHS Global Insight.Any breakdown of talks between the Conservatives and the Lib Dems would delay the formation of a new government and raise the possibility of a wider, and possibly more unstable, pact between the Lib Dems, Labour and a host of smaller parties."There would be serious doubts about its ability to take tough further fiscal action," Archer said.British gilts futures slipped more than half a point, the FTSE index of leading UK shares rose by nearly 5 percent by 1100 GMT and sterling was up against the dollar.Analysts said markets would take solace from comments by the Conservatives and Lib Dems that reducing a deficit running at more than 11 percent of national output would be a plank of any deal.Brown, whose Labour came a distant second in the election, remains in office in a caretaker role. He stands ready to try for an alliance with the centre-left Lib Dems if they are unable to agree with the Conservatives.The BBC said Clegg's negotiating team secretly met senior Labour figures over the weekend. Labour and the Lib Dems refused to comment.A stumbling block to a Conservative/Lib Dem deal could be electoral reform, a long-cherished ambition of the Lib Dems who would win far more seats if Britain switched from its winner-takes-all system to proportional representation.For multimedia coverage, click http://r.reuters.com/quq44jFor a graphic of gilt and stg reaction, click http://r.reuters.com/nec23kFor a graphic of results, click http://r.reuters.com/hym23k- See us online http://uk.reuters.com/news/globalcoverage/politics- Follow us on Twitter https://twitter.com/reuters_co_uk(Additional reporting by Keith Weir, David Milliken and Fiona Shaikh; Editing by Mark Trevelyan)
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