March 7, 2019 / 9:20 AM / 16 days ago

Sterling below 8-month highs as Brexit talks drag

* Volatility gauges on pound tick higher

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, March 7 (Reuters) - The pound held below an eight-month high hit last week on Thursday as investors waited for some clarity to emerge out of Brexit negotiations between the Britain and the European Union.

Diplomats said talks in Brussels on Tuesday led by British Prime Minister Theresa May’s chief lawyer, Geoffrey Cox, failed to find common ground, with barely over three weeks to go before Britain’s scheduled departure on March 29.

Further adding to the uncertainty was an amendment passed by Britain’s House of Lords on Wednesday calling for the government to negotiate a customs union with the European Union, giving May a potential new headache in her Brexit plans.

“Markets are getting conflicting signals from lawmakers in Britain and the negative news flow from Brussels on the negotiation process and that is keeping the pound in a tight range,” said Nikolay Markov, a senior economist at Pictet Asset Management.

The pound was broadly steady at $1.3168 and just below a eight-month high of $1.3351 last week. Against the euro , it was broadly steady at 85.90 pence.

Most economists in a Reuters poll thought Brexit would be delayed by a few months and the two sides would eventually agree a free-trade deal, according to a Reuters poll conducted between Feb. 28 - March 5.

Expected gauges of market volatility in the pound ticked higher though it remained well below levels seen in November 2018. (Reporting by Saikat Chatterjee Editing by Raissa Kasolowsky)

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