* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv
(Adds comment, adds reasons for move, updates prices)
LONDON, May 10 (Reuters) - The pound broke above the key
$1.40 level for the first time in more than two months on
Monday, reaching as high as $1.40725 in early London trading,
despite a win for pro-independence parties in Scottish
elections.
Pro-independence parties won a majority in Scotland's
parliament on Saturday, paving the way for a high-stakes
political, legal and constitutional battle with British Prime
Minister Boris Johnson over the future of the United Kingdom.
But the pound strengthened as market participants did not
interpret this as a near-term risk and welcomed the fact that
Scottish leader Nicola Sturgeon said that her first task was to
deal with the COVID-19 pandemic.
"The likelihood of a second referendum should increase but
it is not yet certain to be held and the potential timing
remains unclear," wrote MUFG currency analyst Lee Hardman in a
note to clients.
"With independence risk so far in the future, we do not
expect the developments to materially alter our outlook for the
pound to continue to trade at stronger levels this year
supported by the robust UK cyclical recovery and vastly
diminished Brexit risks."
Any second referendum on Scottish independence requires the
approval of the UK government and Prime Minister Boris Johnson
has ruled this out, saying the country needs to focus on more
pressing concerns such as the recovery from the pandemic.
Analysts said the move in cable was due more to dollar
weakness, as the greenback dropped to a two-month low after a
disappointing U.S. employment report.
At 0745 GMT, the pound was up 0.5% against the dollar at
$1.4061.
It was up 0.7% on the day at 86.335 pence per euro - which
was only its strongest since last Thursday.
"We read the move as more of a legacy as the market is
moving towards the Bank of England's bullish set of UK forecasts
and now greater confidence in the soft dollar environment," ING
FX strategists said.
The Bank of England said Britain's economy would grow by the
most since World War Two this year and slowed the pace of its
trillion dollar bond-purchasing programme, but stressed it was
not reversing its stimulus.
Marshall Gittler, head of investment research at BDSwiss
Group, wrote in a note that the pound may also be benefiting
from the opposition Labour Party losing control of a number of
authorities in local elections.
"The boost to Conservative control is considered a 'Good
Thing' by the reflexively conservative financial markets," he
said.
Elsewhere, CFTC positioning data showed that speculators
reduced their net long position on the pound in the week to May
4.
(Reporting by Elizabeth Howcroft
Editing by Gareth Jones)