LONDON, Sept 24 (Reuters) - Markets reacted with caution after Britain's Supreme Court ruled that Prime Minister Boris Johnson acted unlawfully when he suspended parliament a few weeks before Britain was scheduled to leave the European Union.
Sterling gave up early gains, stocks were mixed and gilt yields climbed higher after the ruling.
The decision could give parliament more time to block Johnson's effort to leave the EU by Oct. 31, with or without an agreement on the terms of the departure.
Businesses generally opposed such a 'no-deal' Brexit, fearing that it would cause economic damage and disruption, including to food and medicine supply chains. But markets took a longer view.
"Brexit uncertainty combined with political uncertainty is going to keep any big moves in check for the pound," said Neil Mellor, senior FX strategist at BNY Mellon. "What can be a potential option is the increase in the chance of a no-confidence vote in Johnson, but we will have to wait and see."
The pound briefly gained as much as nearly 0.5% on the day to $1.2491. Against the euro, the pound also rose 0.3% on the day to 88.06 pence. But it subsequently gave up those gains.
British gilt yields rose, dragging safe-haven German bond yields higher. British government bond futures fell to a session low of 133.12, down 60 ticks on the day. Ten-year gilt yields rose 3 basis points on the day to 0.585%.
London's blue-chip FTSE 100 hit low for the day as sterling rallied after the ruling. A JPMorgan index tracking UK stocks that make their revenue at home hit their day highs on the news.
"This is a win for the pro-Remain side and suggests it will be harder for the government to push a no-deal Brexit before the end of October. I am not sure how much further sterling can go," said Christopher Graham, senior economist at Standard Chartered in London.
(Reporting by Sujata Rao and Saikat Chatterjee; writing by Larry King; Editing by Kevin Liffey )