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                <p>OTTAWA (Reuters) – Canada's federal election on Monday is too close to call, raising the prospect of a potentially destabilizing political battle between the ruling Conservatives and opposition parties.</p>
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Polls show the Conservatives are set to win the most seats in the 308-seat House of Commons but it is impossible to say whether they will capture a majority, or if they can find opposition support to make a minority government work.</p>
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Canada -- the largest single supplier of energy to the United States -- has not seen such an unpredictable election for more than three decades, McGill University political science professor Richard Schultz told Reuters.</p>
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"It's so up in the air ... as a close watcher (of politics), I'm as confused as anyone by this," he said.</p>
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The right-of-center Conservatives have been in power since early 2006 with two successive minority governments, which required them to gain opposition support to pass key bills.</p>
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They insist they need a majority to keep taxes low and ensure Canada continues to recover from the global crisis.</p>
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Prime Minister Stephen Harper says if he falls short of his goal, center-left opposition parties will oust him and create a "dangerous" coalition guaranteed to wreck the economy.</p>
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His main target is the left-leaning New Democrats, running a strong second in the polls. They promise to raise corporate taxes, increase social spending and bring in a cap and trade system to cut emissions of greenhouse gases.</p>
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"I think the New Democrats' economic platform would be an utter disaster for the country," said Harper, who has run a relentlessly negative five-week campaign.</p>
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"A New Democrat-led minority coalition would ... do enormous damage every single day it is in office," he told the Toronto Star in an interview published on Sunday.</p>
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VOTE-SPLITTING</p>
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Harper could benefit from vote-splitting between the New Democrats and their Liberal rivals and eke out a majority, which would earn him a fixed four-year term in power.</p>
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A Nanos Research tracking poll of results for the last three days put public support for the Conservatives at 37 percent. The New Democrats had 30.6 percent while the Liberals were on 22.7 percent.</p>
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A Conservative-led coalition is not an option, given Harper's attacks on opposition parties and his highly uncompromising style of governing.</p>
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Canada's economy is one of the best performing among rich industrialized nations, although the deficit spiraled to record levels as the Conservatives spent heavily to pull Canada out of recession. All three parties promise to balance the budget within a few years, a factor that reassures markets.</p>
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"We shall see if investors remain so sanguine on Tuesday morning, but they certainly aren't jumping to any conclusions yet," said Douglas Porter of BMO Capital Markets.</p>
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The main reason for the political uncertainty is the unexpected rise of the New Democrats, a pro-labor party that has never held power and started the campaign in third place.</p>
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Leader Jack Layton was upbeat from the start, urging voters to abandon the larger two parties and give him a chance.
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If the New Democrats and Liberals together win more seats than the Conservatives, Harper would have to decide whether to compromise or force a showdown. His first test would come within weeks in a speech to Parliament outlining his plans.
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This is a confidence measure and if opposition parties toppled the Conservatives, they would almost certainly be given a chance to create a government without another election.
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A New Democrat-Liberal coalition could have a major impact on energy policy. Harper sees Canada as an energy superpower that needs freedom to grow and export while the New Democrats fret about the environmental cost of unchecked developments.
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Layton's campaign looks strong in the predominantly French-speaking province of Quebec, where the separatist Bloc Quebecois has been dominant for two decades. Polls suggest the New Democrats could crush the Bloc, which would reassure markets who worry Quebec might one day split away.
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(Reporting by David Ljunggren, Editing by Sandra Maler)</p>
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