Sterling slides as Conservative lead shrinks

* Graphic: sterling and gilt yields http://bit.ly/2dgAXn1

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

LONDON, May 26 (Reuters) - Sterling dived more than half a percent against both the dollar and euro on Friday after the first opinion poll in days showed Prime Minister Theresa May's lead down to just 5 percentage points over the opposition Labour Party.

Markets' assumption that May's Conservatives would win handsomely, strengthening her hand in talks on leaving the European Union, drove the pound higher last month when she called an election for June 8.

But the latest poll by the You/Gov organisation, taken before Monday's bombing in Manchester halted campaigning, showed her lead is now just a quarter of what some other polls showed it was a month ago.

"Sterling is likely to continue to be under pressure now until the election is out of the way, if polling continues to indicate its a tighter race," said Nomura strategist Jordan Rochester.

"For the market the worst outcome is if we have further uncertainty with the chances of a hung parliament."

Other strategists noted that the lead in You/Gov polling had already been less pronounced than some and suggested a U-turn on May's unpopular manifesto commitment on social care may help her after a pause in campaigning caused by the bombing.

"YouGov says the swing in the latest poll is probably due to Conservative manifesto commitments, some of which have changed subsequently," said Adam Cole, head of G10 strategy with RBC in London.

"There will likely be a large number of opinion polls over the weekend, so this picture could change either way in the next few days."

By 0753 GMT, the pound was down 0.5 percent on the day at 41.2880, having traded as low as $1.2861. It lost 0.6 percent to 87.12 pence per euro. (Editing by Gareth Jones)