(Adds candidate Crabb withdrawing)
* May and Leadsom lead in first ballot of Conservative MPs
* Justice minister Gove still in contention
* Process lasts till September, economic worries pressing
* Pound hits new 31-year low
* Three property funds suspend trading
* Bank of England acts to free up bank lending
By William James and Mark Trevelyan
LONDON, July 5 (Reuters) - Interior minister Theresa Mayopened up a strong lead on Tuesday in what is now a three-horserace to become Britain's next prime minister, but the firststage of voting was overshadowed by post-Brexit carnage forproperty investors and the pound.
In symptoms of market concern about the economic impact ofleaving the European Union, sterling hit new 31-year lows andthree funds investing in British property said they weresuspending trading because too many people were rushing towithdraw their money at once.
May won 165 votes in a first ballot of Conservative membersof parliament and Andrea Leadsom, a junior energy minister, won66, increasing the likelihood that Britain will get only itssecond woman prime minister after Margaret Thatcher. JusticeSecretary Michael Gove was third on 48.
Former defence minister Liam Fox won the fewest votes, 16,and was eliminated from the battle to replace David Cameron, whohas said he will step down after Britons voted in a June 23referendum to break away from the EU.
Soon afterwards, work and pensions minister Stephen Crabb,who placed fourth with 34 votes, said he was pulling out andthrowing his "wholehearted support" behind May. Fox said hewould also back her.
May, 59, said: "There is a big job before us: to unite ourparty and the country, to negotiate the best possible deal as weleave the EU, and to make Britain work for everyone.
"I am the only candidate capable of delivering these threethings as prime minister, and tonight it is clear that I am alsothe only one capable of drawing support from the whole of theConservative Party."
'NO CORONATION'
The drawn-out selection process will ultimately be decidedby about 150,000 Conservative Party members in September, onceMPs have whittled the field down to two candidates.
Given strong eurosceptic sentiment among grassrootsConservatives, Leadsom, 53, and Gove, 48, remain in contention.Both were leading voices in the victorious Leave campaign, whileMay favoured remaining inside the 28-nation EU.
Leadsom backer Stewart Jackson told Sky News: "This showsshe's ready to go all the way, there isn't going to be acoronation" of May.
In the meantime, signs are multiplying that concern aboutthe impact of Brexit on trade, investment and businessconfidence is starting to hit the economy.
The 4.4-billion-pound ($5.7 billion) Property Portfolio runby M&G Investments, the fund arm of insurer Prudential,was the latest to suspend business on Tuesday afternoon. InsurerAviva's fund arm had earlier stopped trading in its1.8-billion-pound UK Property Trust, while Standard LifeInvestments suspended a 2.9-billion-pound fund late onMonday.
Shares plunged in other property-related funds, and assetmanagers and insurers were also hit.
The pound, which has borne the brunt of market concern aboutpotential damage to the economy, plumbed new 31-year lows and isnow down more than 12 percent since the referendum.
"There is evidence that some risks have begun tocrystallise. The current outlook for UK financial stability ischallenging," the Bank of England said, announcing measures toencourage banks to keep lending.
In a possible blow to London's financial centre, Germany'sDeutsche Boerse signalled on Tuesday that the headquarters of aEuropean giant to be created from its merger with the LondonStock Exchange Group may now have to be outside the UnitedKingdom.
Voters were bombarded in the run-up to the referendum withwarnings from Cameron and a host of financial institutions andthink tanks that Brexit would plunge Britain into aself-inflicted recession by jeopardising its access to the EU'stariff-free single market.
The Leave campaign derided such arguments as 'Project Fear',arguing Britain would prosper by regaining 'independence' fromBrussels and freeing itself to set its own laws, clinch its owntrade deals and set a cap on immigration - something it cannotdo under EU rules allowing free movement throughout the bloc.
"BLOODY DIFFICULT WOMAN"
Whoever wins the Conservative leadership and the keys to 10Downing Street will have to stabilise the economy and unify aparty that was deeply split by the referendum campaign.
The victor will also need to decide when to initiate divorceproceedings with the EU, and how to extricate Britain from 43years of membership while trying to negotiate favourable termsof trade.
The most seasoned candidates in the field are May and Gove,who stunned colleagues and commentators alike when he abruptlywithdrew his support for former London mayor Boris Johnson lastweek, effectively forcing him from the race. Leadsom enteredparliament only six years ago after a long career in financialservices, and has never served in the cabinet.
Gove and Leadsom have both argued forcefully that the nextprime minister should come from the winning side in thereferendum, which would disqualify May.
"I've managed to bring people together across theConservative Party behind a hopeful and optimistic message ofchange, and I hope that I'll be able to take that message to thecountry," Gove said.
In unguarded comments earlier on Tuesday, caught on cameraand broadcast by Sky News, former Conservative minister KenClarke made disparaging remarks about all three contenders,saying that with Gove as prime minister "we would go to war withat least three countries at once".
He described May as "a bloody difficult woman", but no moredifficult than Thatcher, in whose cabinet he served. He addedthat she was "good", but lacking in foreign policy experience.
Of Leadsom, Clarke said: "She does have experience in theCity ... She is not one of the tiny band of lunatics who thinkwe can have a sort of glorious economic future outside the (EU)single market. So long as she understands that she's not todeliver on some of the extremely stupid things she's beensaying." (Additional reporting by Elizabeth Piper, Kylie Maclellan,Michael Holden, Vikram Subhedar, David Milleken, Huw Jones,William Schomberg and James Davey; writing by Mark Trevelyan;Editing by Janet Lawrence)
