Sterling reaches 12-week high as funds trim Brexit bets

(Adds new poll, quotes, updates prices)

By Patrick Graham

LONDON, April 26 (Reuters) - Sterling hit a 12-week high against the dollar on Tuesday on rising expectations that Britain will vote to remain in the European Union, driving the currency back to levels last seen before the setting of a date for the Brexit referendum.

The pound reached as high as $1.4640 against a broadly weaker dollar before the results of a new ICM poll showing gains for the "Out" camp took some of the shine off the currency in afternoon trade in London.

Investors worry that a vote for a Brexit in June would leave Britain exposed to a further slide by the pound, already weak compared with its historical average, and could raise the cost of financing its huge public debt and undermine a shaky economic recovery.

But the intervention of U.S (Other OTC: UBGXF - news) . President Barack Obama last week in favour of EU membership, along with a shift in some polling towards the "In" camp, has moved bookmakers' odds against Britain voting to leave.

"It (Other OTC: ITGL - news) looks as if there has been a change of sentiment," said Esther Reichelt, an FX strategist with Commerzbank (Xetra: CBK100 - news) in Frankfurt.

"The options market in general is pricing in less chance of a big move around the Brexit vote and the market seems less worried it will happen."

The cost of hedging against swings in sterling reached six-year highs as options contracts moved to capture the result of the referendum on June 23.

But those moves came after implied volatility - the chief vehicle speculative investors have used to bet on trouble for the pound around the vote - fell by its most in a year on Monday.

Sterling's slide since last November in trade-weighted terms reached almost 12 percent earlier this month. It has recovered around 4 percent in value in the fortnight since.

Senior (Other OTC: SNIRF - news) figures with the global banks who dominate currency trading in London said sterling's gains in the past week stemmed chiefly from a cut in bets on volatility around the vote put on by hedge funds earlier this year.

They said many currency-focused funds had already been hurt by the failure of the pound to fall further, and better results for the "In" campaign had prompted some stock market-focused funds to bet on a vote to remain.

"Whatever happens to sterling between now and the date, it's going to be difficult to go into that referendum with a speculative position on the book - unless we get a firmer picture over the next six weeks or so," said Ian Gunner, portfolio manager with the Altana Hard Currency Fund.

By 1533 GMT, the pound was up 0.7 percent against the dollar at $1.4588. Against the euro it gained 0.4 percent to 77.52 pence, having reached as high as 77.35 pence.

Two-month sterling/dollar options, extending for the first time to cover the vote and the result a day later, rose as high as 14.40 percent, their highest since mid-2010, from around 11 percent.

But that move faded later in the day and three-month pricing is down from highs around 16 percent to 13 percent.

The other poll published on Tuesday, by the ORB organisation for the Daily Telegraph newspaper, also showed support for remaining in the EU declined by 2 percentage points to 51 percent over the past week.

The first poll to be taken after Obama's visit is not due until Wednesday.

"It is still early days and real demand is unlikely to return until a positive outcome in June," Credit Agricole (Swiss: ACA.SW - news) analysts said in a note, pointing to the potential for sterling to gain further. (Additional reporting by Anirban Nag and Jemima Kelly; Editing by Mark Trevelyan)