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Sterling slips on dollar rebound, Brexit nerves

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

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

LONDON, March 16 (Reuters) - Sterling fell on Friday as the dollar rebounded across the board but it is still set for its biggest weekly rise in a month as investors became cautiously hopeful that Britain would strike a transition deal at a summit next week for its EU exit.

The dollar edged higher against a basket of currencies . It is set for its fourth consecutive week of gains.

While sticking points remain such as a deadlock over the Irish border issue - and recent headlines from senior officials have also highlighted remaining differences - businesses have become more optimistic that EU leaders can endorse a transition deal at a Brussels summit next Friday.

"A transition deal is not a game changer for the currency markets but what will be a major driver is if we get an open-ended transition deal which will take away the nervousness of a hard Brexit," said Morten Helt, a currency strategist at Danske Bank in London.

On Friday sterling was up by a quarter of a percent at $1.3977. For the week, it has gained one percent, its biggest rise in a month.

Against the euro, which is a better barometer for Brexit negotiations, sterling consolidated gains at a 2-1/2 week high of 88.16 pence.

Sterling hit $1.4346 on Jan. 25, its highest level against the U.S. dollar since Britain voted to leave the European Union in June 2016.

Though it has pulled back modestly from those highs, it remains near the top of its trading range of $1.20 to $1.43, buoyed by the hopes of an eventual Brexit transition deal and by a generally weaker U.S. currency.

In other major developments next week, the Bank of England is set to announce a policy decision which may shed some light on the future path of interest rates. Markets are now pricing in about 36 basis points of rate hikes over the year.

Britain's reliance on the "kindness of strangers" to finance its large current account deficit appears to be increasing, the Bank of England said on Friday. (Reporting by Saikat Chatterjee Editing by Gareth Jones)