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UPDATE 1-Pound rises after UK court says parliament suspension illegal

Olga Cotaga

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

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

LONDON, Sept 24 (Reuters) - Sterling firmed on Tuesday after the UK Supreme Court ruled Prime Minister Boris Johnson's decision to suspend parliament for five weeks was unlawful, but then slipped back on the uncertainty of the Brexit outlook.

"This was not a normal suspension of parliament," court president Brenda Hale said. The decision was unanimous.

Johnson had declined on Monday to say if he would resign if the ruling went against him.

The pound surged briefly to a day's high of $1.2491 immediately after the decision, then slipped back to $1.2457.

It also gave up most of its knee-jerk gains against the euro, which was trading at 88.21 pence by 1056 GMT.

British bond yields rose following the decision, with 10-year gilt yields up 3 basis points to 0.585.

London's blue-chip share index slipped to the day's low. But a JPMorgan index tracking companies that make most of their revenue in Britain rose to session highs.

"This latest twist in the Brexit narrative likely delays the decision point for Brexit but does not make it any clearer whether the UK will leave with a deal, without a deal or not at all," said Edward Park, deputy chief investment officer at Brooks Macdonald Asset Management.

He said he remained underweight on most UK assets.

The court's decision to deem the suspension unlawful offers more scope for parliament to block Johnson's Brexit plans. He has threatened to take Britain out of the European Union on Oct. 31 with no transition deal if the EU does not make concessions on the divorce agreement.

"What's negative for Boris (Johnson) is positive for the pound these days," said Jordan Rochester, forex strategist at Nomura.

Nervous investors are more active on the derivatives market, buying protection against unexpected moves in sterling, sending one-month implied volatility gauges -- which span the deadline for Johnson to find a Brexit deal -- to a three-week high .

The gauge slipped after the ruling.

Johnson says the aim of the suspension - from Sept. 10 until Oct. 14 - was to allow his Conservative government to bring in a new legislative agenda, and that few working days would be lost.

More than three years after Britons voted by 52%-48% in a referendum to leave the EU, Brexit's future remains uncertain.

EU Brexit negotiator Michel Barnier said on Monday it was difficult to see a way to break the impasse as Johnson's demands on the Irish border were unacceptable.

(Reporting by London Markets team; writing by Olga Cotaga)

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