The British pound fell to a seven-week low on Friday after a shock election result cast doubt on Britain's talks to leave the European Union, but key indices hit fresh record highs before tumbling technology shares drove the Nasdaq and S&P 500 lower.

British Prime Minister Theresa May said she would form a government backed by a small Northern Irish party after her Conservative Party lost its parliamentary majority in a vote on Thursday just days before the EU departure talks begin.

The reaction as it unfolded suggested a more limited impact than after last year's Brexit vote, which triggered a prolonged decline in the pound and unsettled other assets.

After a sharp initial fall, the pound steadied early in European trading and then began to claw back ground. Safe-haven gold and U.S. Treasuries drifted lower and futures markets pointed to Wall Street opening modestly higher.

"The uncertainty is bad news for sterling," said Bank of America, Merrill Lynch European equity & cross-asset strategist James Barty. "I think for the global market it doesn't matter. Unlike Brexit, which at the time had a spillover into other markets, this is a very U.K.-specific thing."

The benchmark FTSE 100 index of large British multinationals fed off sterling's decline, as earnings from abroad will be worth more from a weaker currency and gained 1 per cent.

But some sectors seen as particularly sensitive to Brexit instability saw heavy losses, such as homebuilders and real estate investment trusts, which are seen as a barometer of Brexit sentiment due to their holdings of London office space.

After an initial plunge, sterling pared losses against the dollar and euro, while the dollar gained. Safe-haven gold and prices of U.S. Treasuries drifted lower.

The impact of the British election on the U.S. markets was muted.

May's Conservatives failed to win an outright majority in parliament. It meant she turned to Northern Ireland's small Democratic Unionist Party to retain power, amid serious questions about her own future.

That raised fears the political turmoil could delay and confound talks on leaving the European Union, which are due to start in less than two weeks.

John Wraith, a strategist at UBS, said there was a high likelihood of a potentially prolonged period of uncertainty over whether May would be replaced. But he cautioned bears against chasing the pound much lower.

"Today's result will in part be seen as a vote against a definitive break from the EU, and the market may soon begin to reassess the probability of a so-called 'hard Brexit'."