FOREX-Pound drops as chances dim for post-Brexit trade deal after "lively" dinner

* Pound falls 0.5% as Brexit deadline extended to Sunday
* Dollar firm amid little tangible progress in U.S. stimulus
talks
* ECB seen expanding asset purchases at policy meeting
Thursday
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano and Kevin Buckland
TOKYO, Dec 10 (Reuters) - Sterling slid on Thursday after
British Prime Minister Boris Johnson and European Commission
President Ursula von der Leyen gave negotiators until the end of
the weekend to decide if a trade pact can be struck after
failing to bridge gaps themselves.
The European Commission and Britain remained "far apart" on
a post-Brexit trade deal, the bloc's chief executive said after
what she described as a "lively" dinner with Johnson.

"It looks like there won't be any agreement to present to
the EU summit starting today," said Ayako Sera, senior market
economist at Sumitomo Mitsui Trust Bank.
"Markets have been quite optimistic about a deal. I'm a bit
surprised."
Bank of England Governor Andrew Bailey has warned a no-deal
Brexit would cause longer-term damage to Britain's economy than
the COVID-19 pandemic, and the impact of the change might be
felt for decades. The British pound dropped to as low as $1.3311 and last
stood at $1.3365 GBP=D4 , down 0.3% on the day, though it
stayed above this week's low of $1.3225 set on Monday.
"There is some likelihood now that a deal won't be reached
this week, putting the pound at risk of falling to $1.28," which
would be the lowest since September, said Carol Kong, a currency
analyst at Commonwealth Bank of Australia in Sydney.
Against the euro, sterling slid 0.4% to 90.446 pence per
euro EURGBP=D4 .
The U.S. dollar, which tends to fall when risk appetite is
strong, held firm against other major currencies as an agreement
on U.S. stimulus remained elusive, with proposals and
counterproposals on COVID-19 aid flying around the U.S. Capitol.
The dollar index stood at 91.019 =USD , off Friday's 2
1/2-year low of 90.471.
The dollar rose slightly to 104.435 yen JPY= . It was
little changed at $1.2093 per euro EUR= , after four straight
days of gains brought it off the 2 1/2-year low of $1.2177
touched on Friday.
"The dollar can fall further if a U.S. fiscal stimulus deal
is reached in the near term." said Commonwealth Bank's Kong, who
forecasts a decline to $1.24 per euro -- a level unseen since
April 2018 -- by the middle of next year.
Meanwhile, the European Central Bank is widely expected to
expand its stimulus measures to prop up the recession-hit
currency bloc at its policy meeting later on Thursday.
ECB President Christine Lagarde has made clear in recent
weeks that a bigger Pandemic Emergency Purchase Programme (PEPP)
and more subsidised long-term loans for banks will form the
backbone of its policy measures.
Elsewhere, the Australian dollar rose 0.4% to $0.7469
AUD=D4 , approaching the 2 1/2-year high of $0.7485 reached
Wednesday, while the offshore Chinese yuan also hovered below
its 2 1/2-year high set on Wednesday to trade at 6.5265 per
dollar CNH= .