By Carla Mozee, MarketWatch

Pound taps $1.55, but 'Brexit' risk remains

A rally in U.K. stocks and the British pound was under way Friday, with financial markets cheering election results showing David Cameron's Conservative Party will remain in power in the U.K. parliament.

The U.K.'s FTSE 100 jumped 146 points, or 2.1%, to 7,033.33, with only shares of publisher Pearson PLC and Glencore PLC moving lower, down 0.5% and 0.1%, respectively.

All sectors advanced, led by a nearly 5% rise in utilities and financials up nearly 3%.

The midcap FTSE 250 leapt 2.7% to 17,917.46, on course for its highest close on record. It's previous all-time closing high of 17,875.11 was notched on April 10.

The FTSE was on track for a weekly rise of 1.1%, and the FTSE 250 was looking at a 2.6% weekly gain.

The Conservative Party won an effective majority after Thursday's general election, confounding opinion polls that for months suggested the race between the Conservatives and the Labour Party would be too close to call.

Read: Cameron will run an increasingly Divided Kingdom (http://www.marketwatch.com/story/cameron-will-rule-an-increasingly-divided-kingdom-2015-05-08)

"For the best part of 12 months ... transports, utilities, banking and house builders have been weighed down by concerns that the Labour Party's manifesto promises would kill investment incentives as well as threaten dividends for the companies in question," said Michael Hewson, chief market analyst, at CMC Markets UK, in a note Friday.

The "realization that none of these measures will come to pass has seen the market rebound like a coiled spring," he said.

Shares in Centrica PLC , the parent company of British Gas, climbed 7.1%. "While we think some of the fears around Labour were overstated and obviously [a U.K. regulatory] review is still ongoing, Centrica in particular was seen as a way of expressing a view on a potential Labour victory," said BNP Paribas in a note.

Bank major Lloyds Banking Group PLC (LYG) gained 6.5%. Babcock International Group PLC , an engineering support services company, surged 9.4%, and home builder Taylor Wimpey PLC gained 6.6%.

On the 250 index, home builder Berkeley Group Holdings PLC was up 12%, bookmaker Ladbrokes PLC shot up 9.9%, and real-estate agency Savills PLC tacked on 8.8%.

On the fixed-income market, bond prices rose, pushing the yield on the 10-year U.K. Gilt down 8 basis points at 1.86%, according to electronic trading platform Tradeweb.

Sterling: The pound (GBPUSD) climbed to $1.5419, from $1.5249 ahead of Thursday's election. It pared gains intraday Friday after the release of U.S. April jobs data (http://www.marketwatch.com/story/us-jobs-creation-springs-back-in-april-with-223000-gain-2015-05-08-9103014). Overnight, sterling hit as high as $1.5523, after a BBC exit poll put the Conservatives in the lead by a surprisingly large margin.

"The Conservatives are seen as being more business friendly and more importantly, offer continuity in a country that last year experienced the fastest rate of growth," among the Group of Seven advanced economies, said Craig Erlam, senior market analyst at Oanda, in a note early Friday.

While sterling saw "unexpected bullish momentum," the gains are at risk of fading, wrote Jameel Ahmad, chief market analyst at FXTM. A downward move "will be due to an admission from investors that it is only going to be a matter of time before attention shifts and questions over a possible 'Brexit', or increased potential for another Scottish referendum need to be answered."

The Conservatives have promised to hold an in-or-out referendum on a U.K. exit from the European Union -- or "Brexit" -- by 2017. Meanwhile, the Scottish National Party spearheaded last year's vote on whether Scotland should break away from the U.K. The SNP secured a historic landslide election victory in Scotland, winning 56 out of 59 seats.

European Commission President Jean-Claude Junker plans to meet Cameron "soon" (http://www.marketwatch.com/story/eu-chief-to-meet-uks-cameron-soon-to-discuss-reform-demands-2015-05-08) to discuss proposals for reforms of the EU.

Read: U.K. election removes one risk, but another lies ahead (http://www.marketwatch.com/story/uk-election-removes-one-risk-but-another-lies-ahead-analysts-react-2015-05-08)

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