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Sterling bounce checked as Brexit, scandal in focus

* Pound recovers after worst day since week after Brexit

* Signs of political instability raise fears of more weakness

By Polina Ivanova

LONDON, Nov 6 (Reuters) - The pound bounced on Monday after three consecutive weeks of losses, though signs of instability in Britain's governing Conservative party and uncertainty around Brexit negotiations checked gains.

Following Thursday's quarter percent interest rate rise by the Bank of England - its first in over a decade - investors have been watching closely for any developments that could affect the bank's plans for further rate hikes.

The biggest factor is the outcome of Brexit talks, BoE (Shenzhen: 000725.SZ - news) governor Mark Carney said last week.

"Brexit news is still a depressant on sterling. It's a reason people aren't going into sterling because they're still worried about what it really means," said Jeremy Cook, head of currency strategy at WorldFirst.

Sterling was up 0.2 percent against the dollar on Monday at $1.3112, having fallen for three straight weeks.

Against the euro, it was up 0.4 percent at 88.42 pence.

The central bank said last week it expected to raise rates just two more times over the next three years, an announcement that drove the biggest single-day loss for sterling since the week after the Brexit vote in June 2016.

Speaking on ITV (Frankfurt: A0BLQP - news) on Sunday, Carney said Britain's economy would grow more slowly in the short term if the country failed to secure a future trading deal with Europe, and that uncertainty over the progress of divorce talks was impeding British business.

Almost two in three British firms will have contingency plans in place by March for the possibility that Britain leaves the EU without a deal, the Confederation of British Industry said on Sunday.

The government is struggling to contain a scandal about sexual harassment that has embroiled some of Britain's political elite, raising concerns about Prime Minister Theresa May's ability to lead the country towards a good deal.

"Once again the UK's House of Commons seems to be shaken by personal misconduct allegations affecting both main parties," said Hans Redeker, global head of currency strategy at Morgan Stanley (Shenzhen: 002588.SZ - news) in a note to clients.

Should certain ministers be forced to resign, the balance between supporters and opponents of Brexit could be upended, he sad. (Reporting by Polina Ivanova; Editing by Saikat Chatterjee and John Stonestreet)

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