October 23, 2018 / 8:14 AM / 10 months ago

Sterling nudges higher but Brexit uncertainty caps gains

* Pound bounces off 2-1/2 week lows but gains limited

* Pressure on sterling maintained with Brexit deal elusive

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Oct 23 (Reuters) - The British pound recovered from 2-1/2 week lows on Tuesday but gains were limited because of continuing uncertainty about whether Prime Minister Theresa May can see off her opponents and secure Britain an exit deal from the European Union.

May told parliament on Monday that the Brexit deal with Brussels was 95 percent complete, and she urged restive lawmakers to back her in the final stages of Britain’s exit from the EU, saying talks were in their most difficult phase.

But opponents both within her own party and in the opposition have stepped up criticism of the deal she is trying to get, even if an imminent leadership challenge appears less likely.

Analysts said it would remain difficult to find a compromise between May, her allies and those in her party that wanted a sharper break from the EU.

“It will be really, really hard to work out a viable compromise and until that happens, GBP has further to fall,” said Marshall Glitter, chief strategist at ACLS Global.

Sterling skidded to as low as $1.2937 versus the dollar in early Tuesday trading, its weakest since Oct 4, before recovering to trade up 0.2 percent at $1.2987.

Against the euro the pound rose 0.2 percent to 88.29 pence , after earlier hitting a 2-1/2 week low of 88.570 pence on Monday.

“While a leadership challenge may no longer be imminent, it remains at an elevated risk, which is placing the pound under downward pressure in the near-term,” MUFG analysts said in a note. “The Brexit mood music remains negative for the pound, which could fall more sharply if a leadership challenge materialises in the coming months.” (Reporting by Tommy Wilkes; Editing by Kirsten Donovan)

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