LONDON, Dec 1 (Reuters) - Sterling bounced to an almost three-month high in trade-weighted terms on Thursday after Brexit minister David Davis said Britain would consider making payments to the EU budget in return for access to EU markets.

Traders read that as another major crack in the “hard Brexit” line from the government that drove sterling below $1.20 in October and the pound jetted to a three-week high of $1.2644 in response.

It rose to its highest since Sept. 9 at 84.11 pence per euro and was also at its strongest against the Bank of England’s trade-weighted broader measure for the currency at 78.3.

“These headlines suggesting Britain may be able to access the single market are generating substantial sterling demand from traders and investors looking to reduce their short positions and unwind hedges,” said Neil Jones, head of FX hedge fund sales at Mizuho. (Reporting by Patrick Graham, Jamie McGeever and John Geddie)