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Sterling jumps on report UK might be offered 2-year Brexit transition

(Adds details from report, comment by trader, background)

LONDON, Oct (Shenzhen: 000069.SZ - news) 12 (Reuters) - Sterling jumped by more than a cent to reach an eight-day high against the dollar on Thursday, with analysts citing a report in Germany's Handelsblatt newspaper that the European Union could offer Britain a two-year transitional Brexit deal.

The pound had earlier tumbled after the EU's chief Brexit negotiator Michel Barnier told reporters that talks around Britain's divorce payment had become deadlocked, hitting as low as $1.3122.

But it jumped after the report to as high as $1.3292 , up more than 0.4 percent on the day.

Against the euro, sterling strengthened to a three-day high of 89.15 pence, having earlier traded at its weakest in four weeks.

Handelsblatt said Barnier wanted to offer Britain the chance to stay in the EU's single market and customs union for a two-year transition if London agreed to settle its financial obligations with the EU and sign a divorce agreement.

Handelsblatt, citing EU diplomats, said Britain would also have to meet all the obligations of EU membership during the transition and Barnier was expected to make the proposal during a meeting of EU ambassadors on Friday.

"None of this is new news but, seeing today's unjustified sell-off, met with unjustified reversal & potential," ING currency strategist Viraj Patel wrote on Twitter (Frankfurt: A1W6XZ - news) .

Britain's government has said it will cease to be a member of the single market after its scheduled departure from the EU in March 2019 as it would not agree to continue to allow automatic free movement of EU workers into the country. (Reporting by Jemima Kelly; Editing by William Schomberg and Andrew Heavens)