Sterling plunges as early EU vote counts hint at Brexit

By Jamie McGeever

LONDON (Reuters) - Sterling plunged more than six cents against the dollar on Friday after early EU referendum vote counts in two north-eastern cities in England suggested Britons may have voted to leave the European Union.

The pound's steep reversal from a 2016 high above $1.50 reflected extremely choppy and illiquid trading conditions, but also deep nervousness over the high degree of uncertainty that a Brexit vote would likely entail.

UK stock market futures contracts opened sharply lower, pointing to a fall of around 2 percent when the London market opens at 0700 GMT, and U.S. futures pointed to an early fall on Wall Street too.

"The pound is plummeting as Sunderland votes heavily for Leave. Markets are very nervy at the moment ...(and) the Sunderland result has definitely altered the tone of the evening," said Joe Rundle, head of trading at ETX Capital in London.

"It's definitely tin hats time. If Leave wins there will be carnage for cable," he said, referring to the sterling/dollar exchange rate.

Sterling fell to a low of $1.4351, a level last seen as recently as Monday, but around 4 percent down from the fresh 2016 high of $1.5018 struck shortly after the YouGov poll. It was changing hands around $1.4975 before polling stations across the country closed at 2100 GMT.

At its most recent level of $1.4560, sterling is down more than 2 percent on the day and on track for its biggest one-day loss against the dollar since the aftermath of the 2008 global financial crisis.

The pound also fell against other major currencies, and the cost of hedging against sharp swings in sterling over the next week rose back to where it was before the polls closed.

The city of Sunderland voted 61.3 percent to leave the EU, above the 56.5 percent predicted by JP Morgan analysis published before the vote. Newcastle voted narrowly to remain in the EU, but by a much narrower margin than analysts had expected.

These two votes countered an earlier national opinion poll from YouGov that suggested Britons have voted to keep the country in the EU by a 52-28 percent margin. The final official result is expected around 0600 GMT.

Amid very thin liquidity conditions, one-week sterling/dollar implied volatility rebounded to around 26 percent from 19 percent, similar to levels before the polls closed .

The referendum on whether to quit the EU was bitterly-contested, and polarized the nation. Financial markets, on edge for weeks over the uncertain outcome, rallied on the strength of late polls that showed a swing towards staying in.

Banks had warned clients about volatile trading conditions around the results which may lead to large gaps in prices. Barclays stopped accepting new "stop loss" orders as of 0600 GMT, an extremely rare move for one of the big six banks that dominate the world's biggest financial market.

(Reporting by Jamie McGeever; Editing by Mark John)