UPDATE 2-Sterling firm after May proposes "new" Brexit deal

Sterling briefly jumped more than half a percent on Tuesday after Prime Minister Theresa May set out on Tuesday a "new deal" for Brexit, offering sweeteners to opposition parties including a parliamentary vote on whether to hold a second EU referendum. Three years since a 52-48% referendum vote in favour of leaving the European Union and almost two months after the planned exit date, May is mounting a last bid to try to get a deeply divided parliament to ratify her divorce deal with Brussels.

Despite offering what she described as "significant further changes", many lawmakers, hardened in their positions for or against Brexit, have already decided not to vote next month for the Withdrawal Agreement Bill - legislation which would implement the terms of Britain's departure. Brexit uncertainty has grown in recent weeks after the breakdown of talks between May and the opposition Labour party.

That has set the stage for the thrice-rejected deal to fail again if, as now planned, it is put to vote in parliament next month. Those concerns have weighed on the pound as the rejection of the deal yet again would probably pave the way for May to be replaced by a more hardline eurosceptic, possibly Boris Johnson.

"May's latest proposals seems to be aimed at wooing over some of the opposition to support her deal but the opposition from her cabinet is dampening some of the gains," said Lee Hardman, an FX strategist at MUFG based in London. The pound rocketed 0.7% to $1.2815 from $1.2725, its highest since Friday. It later gave up most of those gains to trade at $1.2744, up 0.2% on the day.

Versus the euro, sterling jumped half a percent to 87.255 pence before settling at 87.58 pence, up 0.2% from its earlier level. The jump in the pound rippled over to the wider foreign exchange markets, sending the British currency surging against the Japanese yen and the Swiss franc and pulling the broader dollar index back into negative territory.

Positioning indicators were broadly neutral, with long positions in the pound being pared back in recent weeks, leaving the pound vulnerable to large swings either way. (Reporting by Tommy Reggiori Wilkes and Saikat Chatterjee Editing by Mark Heinrich)