UPDATE 1-Sterling falls as traders eye Brexit talks

* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv (Writes through, adds quotes, updates prices)

LONDON, Feb (Reuters) - Sterling fell against the dollar on Thursday as nervous investors sold the pound ahead of more talks between Britain and the European Union over the terms of Brexit, and Prime Minister Theresa May's highly awaited speech on Friday.

The chairman of European Union leaders, Donald Tusk, will meet May in London on Thursday, a day after the bloc's Brexit negotiator weakened sterling by issuing another warning to Britain, which is due to leave the bloc in March 2019.

Sterling has struggled to build on a rally earlier this year amid a resurgence in political risk centred on Brexit. Warnings by chief negotiator Michel Barnier that a transitional deal -- designed to give Britain and the EU more time to agree the terms of exit -- was not guaranteed have rattled investors.

May is also due to give a key speech on Friday, adding to investor caution.

The pound fell 0.2 percent to $1.3733, having fallen to as low as $1.3728, its lowest since Jan. 15 after a large drop on Wednesday.

Against the euro, sterling traded down 0.1 percent at 88.73 pence per euro.

A closely watched gauge of British factory activity slipped to its lowest in eight months in February as output expanded more slowly, a survey also showed on Thursday.

But it is politics that is the dominant factor in sterling's recent falls.

"The pound is weakening basically at the moment on politics," said Michael Hewson, chief market strategist at CMC Markets.

Hewson said he believed sterling remained in an uptrend that it began early last year, but that it could fall to as low as below $1.34 as investors booked profits and political risk overshadowed any positive economic developments.

The market is pricing in a May interest rate hike by the Bank of England, although the central bank has said its monetary outlook is dependent on smooth negotiations with the EU over Brexit and a healthy economy.

"We believe the pound's decline this week is more Brexit sentiment driven -- rather than a reassessment of UK economic fundamentals -- and point to the 2-3 year part of the UK rate curve staying fairly resilient," ING analysts said. (Reporting by Tommy Wilkes Editing by Catherine Evans)