* Lead of UK PM May's Conservatives drops in YouGov poll
Sterling falters, down 0.5 pct on the day
* Aussie, Canadian dollar nurse losses after Thursday's drop
* Dollar index steady, clings to slight weekly gain (Updates prices, adds comments)
By Masayuki Kitano
SINGAPORE, May 26 (Reuters) - Sterling fell on Friday after a poll showed a narrowing lead for British Prime Minister Theresa May over her opposition ahead of elections next month, while weakness in oil prices dragged on commodity-linked currencies.
In a sign that the June 8 election could be more closely contested than previously thought, a YouGov poll published on Thursday showed that the opposition Labour Party had cut the lead of May's Conservatives to five points.
Sterling fell 0.5 percent to $1.2884, pulling further away from its May 18 peak of $1.3048, the pound's strongest level since September last year.
The assumption that a landslide election win for May would strengthen her hand over hard-line Brexiteers in her ruling party and allow her to negotiate a smoother departure from the European Union, had been a source of support for sterling.
That view, however, has been challenged by recent opinion polls that showed a slide in the lead of the Conservatives.
The narrowing lead for May brings in the risk of a "messier Brexit", said Stephen Innes, a senior trader for FX broker OANDA in Singapore.
"I think the pressure is on here. We could see a significant move lower (in sterling) provided these uncertainties in the polls persist," Innes said.
Commodity currencies remained wobbly as oil prices extended falls after tumbling on Thursday, when OPEC and allied producers extended output cuts but disappointed investors betting on longer or larger supply curbs.
The Canadian dollar was last trading at C$1.3488 per U.S. dollar, down from a five-week high of C$1.3388 touched at one point on Thursday.
The Australian dollar fell 0.3 percent to $0.7431, extending its drop after shedding 0.7 percent on Thursday.
With sterling and commodity currencies looking shaky, the U.S. dollar gained a bit of respite.
Against a basket of six major currencies, the dollar held steady at 97.282. For the week, the dollar index was clinging to a slight gain of about 0.1 percent.
The greenback had been weighed down after the Federal Reserve's minutes of the May policy meeting released on Wednesday dialled down on some of the more hawkish policy expectations in the market.
The dollar's underlying trend doesn't look very strong, said Satoshi Okagawa, senior global markets analyst at Sumitomo Mitsui Banking Corporation in Singapore.
Okagawa said that one message from the Fed minutes was that the U.S. central bank is likely to take a gradual and flexible approach to reducing its balance sheet.
"That has helped U.S. yields to settle down and has led to weakness in the dollar," he added.
San Francisco Fed President John Williams told Reuters on Thursday that the Fed would release details of its plans for trimming its balance sheet "in coming months", adding that balance sheet trimming should be gradual, and 'fundamentally' on auto-pilot.
Against the yen, the dollar eased 0.3 percent to 111.51 yen , staying below a one-week high of 112.13 yen touched on Wednesday.
The euro eased 0.1 percent to $1.1200, having backed away from a 6-1/2 month high of $1.1268 set this week.
The common currency has enjoyed a bull run this month on factors including an ebb in French political concerns and upbeat euro zone data. (Reporting by Masayuki Kitano; Editing by Shri Navaratnam)