UPDATE 1-Sterling falters as PM May puts stripped-down Brexit deal to vote

The pound slid towards a three-week low on Friday ahead of a last-gasp attempt by British Prime Minister Theresa May to win backing from lawmakers for her Brexit deal. Britain was supposed to have left the European Union on Friday but Brussels let London delay its departure while May battles to try to get a consensus on how and when to leave the bloc.

Parliament will vote on a stripped-down version of May's twice-defeated divorce deal agreed with Brussels on Friday. Even if May wins, another vote will be required for Britain to legally exit the EU and the uncertainty is dismaying investors. Britain's attorney general said the vote was the last opportunity for Britain to take advantage of its legal right of delaying Brexit until May 22. Should the agreement not be approved the Brexit delay will expire on April 11, Geoffrey Cox said.

Traders are sticking to the sidelines, creating a shortage in liquidity in the market that has exacerbated swings in the pound. Prominent critics, including Conservative hardliners and Northern Ireland's DUP, which props up May's government, have refused to back the deal, meaning May has little chance of winning parliament's support.

Most traders believe the prospect of a no-deal Brexit is unlikely. "The realistic worst case scenario right now is a long extension and that has its positives and negatives, from a sterling perspective. On the one hand, it's another prolonged period of economic uncertainty but one after which we could end up with a softer Brexit than that on offer, or none at all," said Craig Erlam, an analyst at OANDA.

The pound fell 0.3 percent to $1.3002, its weakest since March 11.. It was down 0.2 percent against the euro at 86.265 pence. Sterling weakened 1.1 per cent on Thursday to end the day at $1.3043 after a volatile session.

The pound is beholden to Brexit news and headed for its worst monthly decline since October. "UK activity data is holding up well, but Brexit risks continue to be the focus for markets. As such, the data can’t add any conviction to market expectations that the [Bank of England] may follow up its latest rate increase soon," ANZ analysts said in a note. (Reporting by Tom Finn and Tommy Wilkes Editing by Angus MacSwan)