* Lawmakers reject deal by 391 to 242
* Pound swings wildly in dramatic session
* Sterling volatility surges on uncertainty (Updates with outcome of vote, quotes)By Tom FinnLONDON, March 12 (Reuters) - Sterling held near the day'slows on Tuesday after a volatile trading session as Britain'sparliament rejected Prime Minister Theresa May's deal to quitthe European Union for a second time.While the pound had weakened sharply against the euro andthe dollar just before the result, it subsequently trimmedlosses across the board after May said Wednesday's vote, whenlawmakers will vote on whether Britain should exit the EUwithout a deal, would be a free one. "One door has closed but other possibilities have opened upand markets are hopeful that Wednesday's vote on a no-dealBrexit will suffer a big defeat," said Timothy Graf, head ofmacro strategy at State Street Global Advisors in London.Sterling which had earlier fallen to an intradaylow of $1.3005, down nearly three cents from overnight highs,was trading at $1.3076, broadly near levels before the votingbegan.Indeed, the pound nearly popped into positive territory atone point towards the end of New York trading hours during May'sstatement after the defeat. FREE VOTE
Theresa May said she would allow her lawmakers to voteaccording to their own beliefs rather than along party lines onWednesday, meaning members of the cabinet can vote against herand each other without having to leave the government.
"For now markets remain convinced that Parliament will actto rule out exiting with no deal - and tomorrow's vote is likelyto confirm this assumption," said Ranko Berich, head of marketanalysis at Monex Europe.Against the euro , the British currency held nearthe day's low at 86.44 pence and just above a low of 86.53pence.
Though the margin of defeat was less than the rejection ofthe previous version in January, it remained sufficiently largeto rule out the possibility of May going back to the EuropeanUnion to try to wring out further concessions.
"It's finally time for Theresa May to admit her deal is pastthe point of no return," said Lee Hardman, currency analyst atglobal bank MUFG based in London.
VOLATILITY HIGHBut Tuesday's vote also meant that an array of possibilitiesopen up including a second referendum or general elections -keeping general market volatility levels on the pound high.
The barrage of news over the last few hours over theprogress of Brexit negotiations sent derivative markets into atailspin with overnight gauges of expected moves in the poundspiking to its highest levels last seen immediately after theBrexit referendum vote in June 2016.If lawmakers reject a no-deal exit on Wednesday, anothervote would then be held on Thursday on whether Britain shouldrequest from the EU a limited extension of the March 29 Brexitdate.
Traders are expecting big swings in the currency around thisweek's votes, according to a sharp rise in one-week impliedvolatility.While overnight gauges of volatility have fallen back fromearlier highs, they still remain elevated compared to historicalaverages.<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^TAKE A LOOK-Brexit - May defeated again in parliament INSTANT VIEW-UK lawmakers crush May's Brexit deal GBP down, volatility surges before Brexit vote ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Alistair Smout, Sujata Rao, TommyReggiori Wilkes, Josephine Mason and Dhara RanasingheWriting by Saikat ChatterjeeEditing by Frances Kerry)
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