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OTTAWA (Reuters) - The left-leaning New Democrats hit new highs in polls on Wednesday, casting new doubt on the outcome of Canada's May 2 election and sending a rumble of discontent through Canadian financial markets.
The NDP's surge could split the center-left vote and hand the ruling Conservatives a majority. But it could also give the New Democrats a chance of forming their first government, in coalition with the faltering Liberals.
The New Democrats, who rail against scheduled tax cuts for big businesses and are pushing an ambitious spending agenda, have never come close to governing Canada. They are campaigning to replace what they say is a broken political system dominated by the two main parties: the Conservatives and the Liberals.
"I'm feeling the winds of change blowing all through this country of ours," NDP leader Jack Layton told a party rally in Winnipeg, Manitoba. Clearly on a roll, he repeatedly referred to himself as the next prime minister.
Markets reacted nervously, aware that Conservatives' grip on power seemed to be fading. The Canadian dollar faltered for much of the day and stocks edged lower, although domestic news was later overshadowed by a Federal Reserve news conference.
An Ekos poll put support for the Conservatives at 34.0 percent, well below the 40 percent needed to guarantee a majority of the 308 seats in the House of Commons.
The New Democrats were at 28.1 percent and the Liberals, who started the campaign in second spot, were at 22.9 percent.
Other polls showed the same order for the three parties, but none gave the Conservatives enough support for a majority, so they would need some opposition backing to govern.
Layton, who consistently ranks as the politician most Canadians would like to have a beer with, says he is prepared to work with any party to advance his party's agenda, which includes raising corporate taxes, increasing pensions and bringing in a cap-and-trade system to tackle greenhouse gas emissions.
But realistically the Liberals are his only possible ally in Parliament. The Conservatives have shown no sign of being ready to enter into a coalition with any other party and insist they need a majority to get a stable government.
Finance Minister Jim Flaherty told Reuters that if the Conservatives were reelected with a minority he would not make major changes to the budget he presented in March -- one which the opposition said it would not vote for.
He said he would have a "serious problem" including any substantive part of the NDP platform.
The NDP ideas do not thrill markets. The Canadian dollar, which this month hit a 3 1/2-year high, struggled for much of Wednesday's session and analysts said a big NDP win could trigger a knee-jerk drop in the currency and in Canadian equity markets.
"The markets tend not to like uncertainty in any form, so that may be why there's some hesitancy to buy Canada," said Shane Enright, executive director, foreign exchange sales at CIBC in Toronto.
Canada is the biggest supplier of energy to the United States. Rich in resources, it weathered the global recession better than most other countries.
Conservative Prime Minister Stephen Harper, in power for five years with minority governments, said the rise of the New Democrats clarified the choice facing voters.
Asked why voters did not appear to be heeding his request for a majority, he told reporters: "I do not accept the premise of your question."
The New Democrats and the Liberals are fighting for an overlapping segment of the electorate on the center-left. If the struggle becomes too intense, it could divide voters and hand a decisive win to the Conservatives.
Harper says that if he does not get a majority, the opposition parties will quickly defeat him and try to create what he calls a reckless and unstable coalition.
Additional reporting by Louise Egan, Allan Dowd, Solarina Ho, Jeffrey Hodgson and Claire Sibonney; editing by Janet Guttsman