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UPDATE 1-Sterling dives to a 2-week low on trade truce; Brexit fears

OLGA COTAGA

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LONDON, July 1 (Reuters) - Sterling fell to a two-week low versus the dollar on Monday as a broadly resurgent dollar sapped appetite for the British currency after the United States and China agreed at a G20 summit in Japan to restart trade talks.

That deal came after U.S. President Donald Trump offered concessions to his Chinese counterpart Xi Jinping when the two met on the sidelines of a Group of 20 summit in Japan.

Investors also avoided the pound on concerns that arch-Brexiteer Boris Johnson, the favourite to replace Prime Minister Theresa May, will push to leave the EU with or without a deal by Oct. 31.

"The rhetoric coming from the EU is that they are reluctant to open the deal they negotiated with May, and that might set up a confrontation with the new British prime minister who, barring a major upset, will be Boris Johnson," said Lee Hardman, a currency strategist at MUFG in London.

The ruling Conservative Party will elect its next leader by the end of July, giving them only a few months to try to renegotiate the Brexit withdrawal agreement.

The pound slipped 0.5% to a low of $1.2634, bringing losses since early-May to nearly 5% and to its lowest levels since June 19.

Against the euro, however, sterling firmed to approach one-week highs, trading at 89.26 pence. The currency had fallen to nearly six-month lows last week.

Britain's economy has lost momentum and might have shrunk in the second quarter of 2019, according to data that showed the double impact of Brexit and the slowdown in the global economy.

Investors remain reluctant to take big positions in the pound, with both hedge funds and real money investors broadly short on the currency after trimming long positions since March.

Latest positioning data from the Commodity Futures Trading Commission (CFTC) showed short sterling positions rising slightly in the week to Tuesday.

"We don't see much flow because it's hard to have a strong view (on sterling)," said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America Merrill Lynch. (Reporting by Olga Cotaga; Editing by Toby Chopra and Hugh Lawson)