* Markets see Johnson win as meaning orderly Brexit

* Sterling back at July 2016 levels vs euro

* Rallies more than 2% vs dollar, highest since May 2018

* Sentiment behind the pound for now, say analysts

The British pound surged more than 2% on Thursday as Prime Minister Boris Johnson's Conservative Party looked set for a decisive election victory that markets believe makes an orderly exit from the European Union all but certain.

Sterling's dramatic gains saw it reach a 19-month high versus the dollar and its strongest levels against the euro since shortly after the 2016 Brexit referendum.

Its jump - as much as 2.5% - versus the dollar put it on course for one of its biggest one-day gains since the 1990s.

Chastened by 3-1/2 years of political instability in Britain, investors have seized on the likely Conservative landslide, believing it will enable Johnson to deliver Brexit with his withdrawal agreement on Jan. 31.

That would end immediate fears about the United Kingdom crashing out of the EU.

"Just as Boris Johnson was desperately seeking his majority, this result would give the markets their ultimate wish: clarity," said Dean Turner, Economist, UBS Wealth Management.

Johnson's Conservatives were on course to win a comfortable majority of more than 60 seats in the 650-seat parliament in what could be the biggest Conservative national election win since Margaret Thatcher's 1987 triumph.

The Conservatives claimed a string of Leave-supporting seats from Labour in the opposition party's heartlands of Wales and northern England, results showed.

The pound rocketed 2.5% higher to $1.3516 - its highest since May 2018. It later settled at $1.3472.

Against the euro, sterling rose as high as 82.80 pence , up more than 2% on the day, leaving the pound at levels last seen in July 2016, shortly after the Brexit referendum that hammered the currency. The pound traded around 76 pence per euro before the June 2016 Brexit vote.

"Sterling has moved aggressively. I would anticipate we would get a decent rise in UK equities in the morning too," said Peter Kinsella, Global Head of FX Strategy at UBP.

He said the move was a "relief rally" that the Labour Party under Jeremy Corbyn was unlikely to win and reflected the size of the majority the Conservatives looked set to claim.

The pound could move towards $1.37 as investors who have avoided UK assets in recent years return, Kinsella added, although analysts cautioned that the wind behind the pound was largely sentiment-driven rather than structural.

FTSE 100 futures fell 0.2%. The exporter-heavy FTSE 100 often weakens when sterling rallies.

Corbyn's nationalisation plans have weighed on UK domestic stocks, and energy and transport shares were tipped to climb when the stock exchange opened on Friday.

Yields on British government bonds are set to rise as investors buy into riskier assets like stocks.

Sterling traders at banks and investment firms are working through the night, with the bulk of parliamentary seats to be declared before 0500 GMT.

Broader global markets gained on Friday, boosted by both the likely UK election result and reports a last-gasp trade deal had averted new U.S. tariffs on China.

BREXIT NOT DONE

Political uncertainty has dogged the performance of British assets and the pound since the referendum as investors fretted about the damage a departure from the EU would cause the UK economy.

Markets' enthusiasm for a Conservative victory under Johnson contrasts with the summer, when sterling slumped as investors worried Britain was headed for a disorderly and economically damaging no-deal Brexit under his leadership.

But Johnson subsequently secured a new agreement with Brussels and then called a snap election after accusing parliament of frustrating his plans.

He fought the election under the slogan of "Get Brexit Done", promising to end the deadlock.

The opposition Labour Party promised the public a second Brexit referendum.

But Brexit is far from over and the pound faces more volatility in 2020 as Johnson confronts the tough task of negotiating a future trade agreement with the EU, possibly in just 11 months.

"The biggest hope from an economic perspective will be clarity over Brexit in the near term, which should prompt a modest recovery in activity," said UBS Wealth's economist Turner.

"However, Brexit isn't yet really 'done', and attention will quickly turn to the future trade relationship. This phase looks set to be every bit as difficult as the last, with just over 12 months until the transition period ends on 31 December 2020."