* Graphic: Sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Ritvik Carvalho
LONDON, Feb 27 Sterling hit a 12-day low against
the dollar on Monday, as talk of another possible Scottish
independence vote added to fears about Britain's future as it
prepares to leave the European Union.
A report in the Times newspaper said British Prime Minister
Theresa May is preparing for Scotland to call a fresh
independence referendum in March, to coincide with the
triggering of Article 50 -- Britain's formal notification to
leave the EU.
Traders said that had weighed on the pound, which
skidded by as much as 0.7 percent to $1.2384 in early European
trade - its lowest in nearly a fortnight - but had recovered
some of those losses by 1350 GMT, last trading down 0.4 percent
A separate report in the Telegraph newspaper reported that
May is planning to curb freedom of movement for EU citizens as
soon as she triggers Article 50.
A spokesperson for the prime minister said the threat of a
fresh Scottish independence vote was creating unnecessary
uncertainty and division, and that the prime minister has not
yet set a timetable for her migration policies, which gave the
pound some relief.
"While (a second Scottish referendum is) a tail risk at this
stage ... such risks are yet to be adequately priced into the
currency," ING FX strategist Viraj Patel wrote in a note to
Against the euro, sterling fell 0.7 percent to a one-week
low of 85.35 pence per euro.
Analysts also pointed to the likelihood that a merger to
create Europe's biggest stock exchange would be scuppered as a
reason for sterling's weakness on the day.
"The merger between LSE and Deutsche Boerse may be off the
table and I think that's flagged sentiment," said Richard
Cochinos, European head of G10 currency strategy at Citi.
Sterling has lost nearly a fifth of its value since Britain
voted to leave the European Union in a referendum last June,
with data providing a mixed picture of the British economy.
A survey on Monday showed optimism among businesses in
Britain's services sector is now higher than at any time since
June's vote to leave the European Union, despite the prospect of
rising costs and prices eroding profits.
Associated British Foods, owner of discount fashion
retailer Primark, said it was not seeing any signs that British
consumers were starting to rein in spending, contradicting
official data which has pointed to a slowdown.
"On top of soft data from the UK recently ... these fresh
signals of a 'hard Brexit' and the risk of another Scottish
referendum, enhances our view that the broader outlook for
sterling remains negative," analysts from retail broker IronFX
said in a note to clients.
"Our favorite proxy for any potential sterling softness in
the foreseeable future is still sterling/yen, considering that
the looming political risks in Eurozone could strengthen the yen
due to its safe haven status."
(Editing by Catherine Evans and Richard Lough)