By William James and Jamie McGeever
LONDON (Reuters) - Britain's vote to leave the European Union sent new shockwaves through financial markets on Monday, despite efforts by the country's leaders to end the deep political and economic uncertainty unleashed by the decision.
Finance minister George Osborne said the British economy was strong enough to cope with the volatility caused by Thursday's referendum, the biggest blow since World War Two to the European goal of forging greater unity.
But the pound later sank to its lowest level against the U.S. for 31 years and British shares continued the fall that began last week when Britons confounded expectations by voting to end 43 years of EU membership.
Chinese Premier Li Keqiang said uncertainties over the global economy had heightened and called for a "united, stable EU, and a stable, prosperous Britain".
But with the ruling Conservatives looking for a new leader after Prime Minister David Cameron's resignation on Friday and lawmakers from the opposition Labour party stepping up a rebellion against their leader, Britain sank deeper into political and economic turmoil.
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"There's no political leadership in the UK right when markets need the reassurance of direction," said Luke Hickmore of Aberdeen Asset Management, expressing the view of many in the City of London financial centre.
Although Cameron is staying on until October as a caretaker, he refused to start formal moves immediately to pull Britain out of the EU. This prompted many European leaders to demand quicker action by Britain, the EU's second largest economy after Germany before the vote.
"France like Germany says Britain has voted for Brexit. It should be implemented quickly. We cannot remain in an uncertain and indefinite situation," French finance minister Michel Sapin said on France 2 television.
Guenther Oettinger, a German member of the EU's executive European Commission, also issued a warning.
"Every day of uncertainty prevents investors from putting their funds into Britain, and also other European markets," he told Deutschlandfunk radio. "Cameron and his party will cause damage if they wait until October."
German Chancellor Angela Merkel has taken a softer line, underlining the need to continue a positive trade relationship with Britain, a big market for German carmakers and other manufacturers.
But a Merkel ally, Volker Kauder, made clear the exit negotiations would not be easy.
"There will be no special treatment, there will be no gifts," Kauder, who leads Merkel's conservatives in parliament, told ARD television.
FINANCIAL MARKETS' MISJUDGEMENT
Financial markets misjudged the referendum, betting on the status quo despite abundant signs that the vote would be close.
When reality dawned, the reaction was brutal. Sterling fell as much as 11 percent against the dollar on Friday for its worst day in modern history, while $2.8 trillion was wiped off the value of world stocks - the biggest daily loss ever.
That trumped even the Lehman Brothers bankruptcy during the 2008 financial crisis and the Black Monday stock market crash of 1987, according to Standard & Poor's Dow Jones Indices.
Osborne tried to ease investors' concerns in his first public comments since the referendum. He said he was working closely with the Bank of England and officials in other leading economies for the sake of stability as Britain reshapes its relationship with the EU.
"Our economy is about as strong as it could be to confront the challenge our country now faces," he told reporters at the Treasury. "It is inevitable after Thursday's vote that Britain's economy is going to have to adjust to the new situation we find ourselves in."
Boris Johnson, a leading proponent of a Brexit and likely contender to replace Prime Minister David Cameron who resigned on Friday, praised Osborne for saying "some reassuring things to the markets."
The former London mayor said outside his home in north London that it was now clear "people's pensions are safe, the pound is stable, markets are stable. I think that is all very good news."
But financial markets took a different view, with sterling sliding Monday, shedding more than 3 percent against the dollar to $1.3221
The yield on British 10-year government bonds fell below one percent for the first time due to investors betting that the Brexit vote would trigger a Bank of England interest rate cut aimed at steading the economy.
Many economists have cut economic growth forecasts for Britain, with Goldman Sachs expecting a mild recession within a year.
But the risks affect economies far beyond Britain.
"Against the backdrop of globalisation, it's impossible for each country to talk about its own development discarding the world economic environment," China's Li told the World Economic Forum in the city of Tianjin.
Japanese Prime Minister Shinzo Abe instructed his finance minister to watch currency markets "ever more closely" and take steps if necessary.
At the weekend, the policy chief of Abe's LDP party held open the possibility of currency intervention to weaken the yen and temper "speculative, violent moves".
DIVIDED PARTIES
The referendum has revealed social as well as economic stresses in divided Britain. Immigration emerged as one of the main themes of the referendum campaign, with those who backed a British exit saying the EU had allowed uncontrolled numbers of migrants to arrive from eastern Europe.
Police said offensive leaflets targeting Poles had been distributed in Huntingdon, central England, and graffiti had been daubed on a Polish cultural centre in central London on Sunday, three days after the vote.
According to a local newspaper, the Cambridge News, the leaflets said: "Leave the EU/No more Polish vermin" in English and Polish.
The Polish embassy in London said it was shocked by the "recent incidents of xenophobic abuse directed against the Polish community and other UK residents of migrant heritage."
With Britain now facing uncertainty over how its trade relationship with the EU will unfold, Johnson tried to calm fears by writing in the Daily Telegraph newspaper that there would be continued free trade and access to the single market.
He did not set out any details but suggested Britain would not accept free movement of workers, saying it could implement an immigration policy which suited business and industry.
However, single market rules stipulate that countries must accept the free movement of people as well as goods. Yielding on immigration would anger many Britons who voted to leave, believing this would halt a tide of workers from eastern Europe.
Johnson is expected to declare soon that he is running to lead the Conservatives, who have been divided for decades between pro- and anti-EU factions.
Divisions within the opposition are also deep. A wave of Labour lawmakers resigned from leader Jeremy Corbyn's team on Monday, adding to the 11 senior figures who quit on Sunday.
They say Corbyn, a veteran left-winger who has strong support among ordinary party members, is not fit to lead the party and point to his low-key campaign to keep Britain in the EU.
If repeated at the next parliamentary election, due in 2020, they fear Labour faces disaster following its near wiping out in Scotland last year. Corbyn has said he is going nowhere.
(Additional reporting by Kevin Yao, Costas Pitas, Bate Felix, Andrea Shalal, Michael Holden, Guy Faulconbridge, David Milliken, Patrick Graham, Anirban Nag, Conor Humphries, Minami Funakoshi and Tetsushi Kajimoto, Writing by David Stamp, Editing by Timothy Heritage)