Sterling hit as Greek crisis put focus on UK debt

* Sterling feels spillover effects from Greece crisis

* Dire UK fiscal situation back in focus

* Political uncertainty adding to pressure on the pound

By Neal Armstrong

LONDON, April 28 (Reuters) - Sterling fell on Wednesday as the risk of contagion from Greece's deepening crisis put the focus back on the UK's fiscal problems and on prospects that no political party will win a majority at next week's election.

Analysts said the risk that a sovereign debt crisis could spread, after S&P cut Greece's ratings to junk status on Tuesday, was hitting the pound.

"There is evidence of contagion from Greece. The UK's fiscal position is dire and I think the market is selling sterling on the back of that today," said Lee Hardman, currency strategist at BTM/UFJ.

"Also a hung parliament in the UK is looking likely, which leaves sterling vulnerable on the downside," he said.

At 0825 GMT, the pound was trading at a three-week low of $1.5188 percent versus the dollar GBP=D4.

The euro EURGBP=D4 was trading with gains of around 0.4 percent at 86.70 pence. Traders reported good interest in picking up euros on dips towards 86.00, said to be option-related.

"A debt spiral is not beneficial for the UK. Spillover effects are starting to weigh on sterling," said Jeremy Stretch, currency analyst at Rabobank.

POLITICAL UNCERTAINTY

The latest opinion polls in the UK continued to point to no one party gaining a majority at the general election on May 6. [nUKPOLLS10].

An uncertain outcome in the election has looked more likely after a recent surge in support for the Liberal Democrats, the UK's third party, while it is also uncertain which main party the Liberal Democrats would choose to form a coalition with.

Investors fear that if no one party wins an outright majority the incoming government may struggle to take tough measures to cut the UK's deficit, which is expected to come close to 12 percent of gross domestic product.

The possibility that it could take time to form a government after the election as the parties jostle for position was also starting to play on investors' minds.

"The reality that it could take time to form a government next week might destabilise sentiment further," said Rabobank's Stretch.

(Editing by Nigel Stephenson)