UPDATE 3-Sterling braces for May's Brexit deal vote after worst month in five

The pound gained on Friday on some hope British Prime Minister Theresa May will pull off her last-gasp attempt to win backing from lawmakers for her Brexit deal, but the British currency was still on track for its biggest monthly drop in five months.

Britain was supposed to have left the European Union on Friday but Brussels let London delay its departure while May battles to try to secure a consensus on how and when to leave the bloc. The rising uncertainty has battered sentiment towards the pound this month after some optimism that the United Kingdom would successfully avoid crashing out of the EU without a deal bolstered the British currency.

"Even if she manages to win the vote today, which looks like a very long shot, the uncertainty over the pound will remain," said a trader at a European Bank in London. Traders say investors and particularly hedge funds have scaled back their trading of the pound because it has become so difficult to predict amid the constant and sometimes arcane political developments.

The lack of trading activity has reduced liquidity in the market, exacerbating swings in the currency. Parliament will vote on a stripped-down version of May's twice-defeated divorce deal agreed with Brussels on Friday. Even if she 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 deal not be approved the Brexit delay will expire on April 11, Geoffrey Cox said. The stance of Northern Ireland's Democratic Unionist Party, which props up May's minority government, has been that it cannot back a Brexit divorce deal that does not protect the whole of the United Kingdom, and the DUP said on Friday that "still stands and is our position".

The currency rallied as much as 0.7 percent before trimming some gains as hopes May would pass her deal fell back, to stand 0.3 percent up on the day at $1.3074. It was up 0.1 percent against the euro at 85.97 pence. Former Brexit minister Dominic Raab and other hardliners previously opposed to the deal said on Friday they would back it, but without the DUP's support May will likely need opposition Labour lawmakers to support her

Volatility gauges for the pound in the short term relative to the medium term are at their highest levels since the Brexit referendum vote in 2016, indicating traders remain nervous. "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 online broker OANDA.

(Reporting by Tommy Wilkes and Saikat Chatterjee Editing by Mark Heinrich and Jon Boyle)