UPDATE 3-Shares in UK banks jump as Conservatives stay in power

* Fears over bank break-ups, levy rise dispelled

* Bankers had feared uncertainty if no clear result

* 9.1 bln stg added to value of 5 biggest UK banks (Adds updated shares, value of gains, bank reaction)

By Matt Scuffham

LONDON, May 8 (Reuters) - Shares in British banks jumped onFriday as the Conservative party looked set to form the nextgovernment, removing fears of a break-up of the biggest amongthem and further hikes in a tax on their assets.

The market value of the five biggest British banks hadincreased by 9.1 billion pounds by 1110 GMT, fuelled by reliefat a clear election outcome in favour of a party many seniorbankers see as more business-friendly.

Shares in Lloyds were up 6.7 percent, the highestlevel since 2008 when the government began a bail-out that put41 percent of the bank in state hands.

The increase gives the state a 2.3 billion profit on its 20percent remaining stake based on current share prices and willencourage the Conservatives to go ahead with their pledge tosell 9 billion pounds worth in shares over the next year,including a discounted offer to private retail investors.

RBS, now 80 percent government-owned, was up 6.4percent, although taxpayers are still sitting on a 13.4 billionpound loss on the RBS investment.

Other banks' shares rose too, with Barclays up 4.9percent and HSBC and Standard Chartered risingby 1.3 percent and 1.6 percent respectively.

The opposition Labour party had said it would increase thebank levy, based on banks' assets, by 800 million pounds to payfor spending on childcare and job guarantees if it won theelection.

REFERENDUM CONCERN

London's financial services industry remains concerned aboutthe Conservative's commitment to a referendum on Britain'smembership of the European Union in 2017.

"In time, the focus of investors will shift to theuncertainty that will come ahead of the proposed referendum onthe UK's membership of the European Union in 2017, which couldprompt some domestic and overseas investment to be delayed,"said Azad Zangana, senior European economist at Schroders.

The British Bankers Association urged the new government toensure that UK banks remain competitive with overseas rivals, acoded plea for what many bankers regard as excessive regulationof the industry since the crisis to be toned down.

"We need to focus now on implementing the reforms that havealready been legislated for, and ensure that banking - ourbiggest export industry - remains globally competitive," BBAChief Executive Anthony Browne said.

The performance of the Scottish National Party, whichrampaged to victory north of the border, has set the stage for anew battle over independence and raises the question of whetherEdinburgh-based RBS and Lloyds will again review the location oftheir headquarters.

"A second referendum in this term of the government lookshighly likely and investors including UKFI (which manages thegovernment's stake) would want the banks to relocate," saidBernstein analyst Chirantan Barua.

Friday's share price rises mean that the value of taxpayers'stakes in RBS and Lloyds, which were bailed-out at a combinedcost of 66 billion pounds during the 2007-9 financial crisis,increased by 2.8 billion pounds.

(Additional reporting by Sinead Cruise, editing by Steve Slaterand Philippa Fletcher)