UPDATE 1-Sterling sinks after May seen falling short of majority

(Adds euro price move, analyst comment)

LONDON, June 8 (Reuters) - Sterling sank more than 2 cents against the U.S. dollar after an exit poll on Thursday unexpectedly showed Prime Minister Theresa May falling short of an overall parliamentary majority in Britain's election.

By 2120 GMT, the pound traded down 1.5 percent on the day at $1.2732, having fallen as low as $1.2705 in the minutes after the projection was released by UK broadcasters.

The pound also fell 1.7 percent to 88.02 pence per euro.

"A hung parliament is the worst outcome from a markets perspective as it creates another layer of uncertainty ahead of the Brexit negotiations," said Craig Erlam, a market analyst with brokerage Oanda in London.

"Sterling looks very vulnerable to further downside. It could be another very bad night for the pound." (Writing by Patrick Graham; editing by William Schomberg)