* Sterling rally stalls on reports Brexit talks hit
standstill
* London, Brussels racing to get deal agreed before summit
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Adds details, updates prices)
By Dhara Ranasinghe and Josephine Mason
LONDON, Oct 16 (Reuters) - Sterling swung around five-month
highs on Wednesday and stocks in London cut their losses amid a
blizzard of contradictory headlines about whether Britain and
the European Union were on the verge of agreeing a Brexit deal.
In another volatile day of trading for UK assets, financial
markets remained hostage to news as British Prime Minister Boris
Johnson and EU negotiators raced against the clock to forge a
withdrawal agreement before an EU summit on Thursday.
Negotiators were struggling to clinch an 11th-hour deal,
raising the chances that Johnson will have to seek an extension
of the Oct. 31 deadline for Britain's exit from the bloc.
Sterling has surged some 5% since late last week, when
London and Brussels restarted intense negotiations.
But on Wednesday sources in the bloc said the talks had hit
a "standstill". Disagreements centre on a future trade deal and the
rejection by Northern Ireland's Democratic Unionist Party (DUP),
which supports the ruling Conservative Party in the British
parliament, of customs arrangements tentatively agreed by
negotiators for the Irish border.
The DUP's leader Arlene Foster dismissed an earlier report
that her party had come round to an agreement. "It looks like a deal is being worked on but everyone who
works with the EU knows that these deals happen at the last
minute," said Kit Juckes, head of currency strategy at Societe
Generale in London. "It seems more likely than not that we will
need an extension."
At 1540 GMT, sterling was up 0.5% at $1.2844 GBP=D3 ,
having earlier rallied to $1.2855, a new 5-month high, on
optimism that the DUP was coming round to a deal.
Against the euro, the pound was 0.2% stronger on the day at
86.160 pence - but off five-month highs hit earlier.
Sterling trading volumes have surged in recent days. On
Tuesday, investors bought and sold more pounds than on any
single day since November 2018, according to Refinitiv data.
London-listed companies that make their cash at home, from
housebuilders to banks, on Wednesday reversed some of the ground
gained since last week.
These domestically focused stocks, some of the world's most
unloved shares in recent years, have seen their fortunes
transform since Friday - JPMorgan's domestic basket .JPDEUKDM
has outperformed London-listed exporter peers .JPDEUKEX and
the blue-chip FTSE 100 .FTSE .
Britain's mid-cap stocks index FTSE 250 .FTMC cut its
losses from the morning and was last down marginally. Ireland's
main stocks index .ISEQ fell 0.5%.
"UK equities have started to look more interesting. We've
been on the negative side for some time, (but) I wouldn't be so
pessimistic there any more because valuations have started to
look more attractive. A lot of bad stuff is priced in," said
Legal & General Investment Management strategist Lars Kreckel.
"If the Brexit issue were to disappear or become less
prominent, you could have some flows returning to UK equities."
Trading in sterling options suggested high volatility in the
currency was likely one way or another. British government bonds benefited from the renewed
uncertainty, with 10-year yields broadly flat on the day at
0.706% GB10YT=RR .
With the spotlight on Brexit, September inflation data had
little market impact. Britain's inflation rate failed to rise as
expected last month as petrol prices fell at the fastest rate in
more than three years, a boost to consumers ahead of
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UK domestic vs exporter stocks https://tmsnrt.rs/2Be1DTO
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