Britain and the EU were seen to be closing in on a detailed draft Brexit deal on Tuesday, although officials voiced scepticism it would be ready in time for a key European summit this week.
The pound jumped to its highest level in five months on cautious optimism voiced by both sides that an outline agreement could soon be struck.
However Irish Prime Minister Leo Varadkar, speaking in a Dublin media conference, warned that "the gap was still quite wide, particularly on the issue of customs" along the Irish border with Northern Ireland.
An EU official told AFP late Tuesday: "Talks are ongoing. I have no update right now." EU negotiator Michel Barnier said a text must be on the table by early Wednesday if it is to be put before leaders at the two-day EU summit starting Thursday. A special sitting of the British parliament is scheduled for Saturday.
If the early-Wednesday deadline is missed, officials said talks could always resume next week and a special summit be called just in time for Prime Minister Boris Johnson to fulfil his pledge to lead Britain out of the bloc on October 31.
One European source told AFP that it was "possible" a preliminary legal text could be reached perhaps by late Tuesday. But another was unable to confirm any breakthrough.
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Varadkar said: "Whether we'll be able to conclude a revised withdrawal agreement, which after all is an international treaty, in time for the summit on Thursday, that's as of now unclear."
European leaders are firm that, while they are keen for a deal, they will not let Britain use Northern Ireland as a back door to the single market. They have been urging London to go beyond broad proposals on the table if a deal is to be done this month. Johnson is said to have given ground on customs rules for Northern Ireland in a bid to reach a formal text.
Barnier said as he arrived in Luxembourg to brief EU ministers that he was cautiously optimistic but that "it is high time to turn good intentions into legal text." French President Emmanuel Macron apparently shared the guarded optimism, with an aide telling reporters there was "positive momentum" behind the talks. Downing Street said Johnson had called Macron and had a "constructive" and "good discussion".
"We want to make progress towards securing a deal as soon as possible and we want to make progress ahead of the EU council on Thursday," a spokesman said. But German Chancellor Angela Merkel outlined why EU officials are driving a hard bargain and hoping Britain will commit to a "level playing field" in post-Brexit trade and commerce.
"One thing is clear, Britain will develop into another competitor on the doorstep of Europe," she told industrialists. "And therefore the EU will be challenged to become more competitive and to assume geopolitical responsibility."
"The last moment is always a bit later than you think," one German government official told AFP, suggesting that Brexit day would have to be postponed beyond the end of the month if talks are to succeed.
"I am sceptical that we will have a full agreement tomorrow (Wednesday) on a legal text ... the question is whether the work can be done in the next few days or whether it will take another two months." British Brexit Minister Stephen Barclay joined Barnier in Luxembourg in what was seen as a positive sign for the talks, and said "a deal is still very possible".
Barclay later tweeted a picture of himself with Irish, Polish, Greek, Swedish and Portuguese counterparts, saying they shared his desire to "get Brexit done." More than three years after Britain's 2016 referendum vote to leave, talks remain stuck on how to avoid customs checks on the border between British-ruled Northern Ireland and EU-member Ireland.
The EU has reservations about London's proposed customs arrangements and the role for Northern Ireland's Stormont assembly in giving consent to the plans.
"Johnson has modified his original proposals to the effect that he has clearly stated that there will be no customs border on the Irish border," a European diplomat told AFP. If no deal is reached by Saturday, Johnson will fall foul of a British law demanding he ask the EU to postpone Brexit for a third time rather than risk a potentially disastrous "no deal" departure.
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