November 20, 2018 / 11:52 AM / 22 days ago

UPDATE 2-Broad equity, FX selloff drags sterling lower

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

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Recasts, updates prices)

By Saikat Chatterjee

LONDON, Nov 20 (Reuters) - Sterling retreated during Tuesday as a rally in the dollar in a broadly risk-averse market prompted traders to cut risky bets, with uncertainty over Brexit negotiations also sapping demand.

The dollar rallied nearly half a percent against its rivals as U.S. stocks, oil and the euro dropped in a broad-based selloff across global markets.

The pound was down 0.25 percent at $1.2815, retreating nearly half a percent from the day's highs $1.2884.

But despite the weakness in the pound, the moves were very tiny compared to its rivals such as the euro and the Canadian dollar which weakened by 0.6 and 0.8 percent respectively.

Earlier, sterling had rebounded off lows after Bank of England Governor Mark Carney gave his backing to a Brexit deal struck by Prime Minister Theresa May last week.

Speaking to lawmakers, Carney and other BoE officials repeated their warning to investors not to assume that the central bank would respond to a no-deal shock by cutting interest rates, as it did after the Brexit referendum in 2016.

"Carney's comments did not deviate much from what they have said earlier so that helped sentiment a bit but concerns remain high," Fritz Louw, a currency analyst at MUFG in London, said.

The Northern Irish Democratic Unionist Party, which props up May's government, has said she ought to demand a better deal from the European Union on the terms of Britain's departure.

Growing opposition to May's draft arrangement has hit sterling hard in recent days, pulling it down nearly 3 percent from a Nov. 7 high of $1.3176.

Derivative markets painted a broad picture of caution with short-dated sterling risk reversals at their lowest levels since July 2016, indicating investors were still expecting more pound weakness.

Against the euro, the pound gained by 0.3 percent at 88.85 pence.

Reporting by Saikat Chatterjee; Editing by Alison Williams

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