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Oct 12 (Reuters) - The Bank of England has signalled privately to lenders that it was prepared to extend its emergency bond-buying programme beyond Friday's deadline if market conditions demanded it, the Financial Times said, citing three sources.

Wednesday's report comes a day after the British central bank's governor, Andrew Bailey, said he had no intention of extending purchases of bonds beyond the deadline.

Sterling bounced 0.4% to $1.1008 after the report and was last up 0.28%.

"The risk is the pound quickly reverses the move if BoE officials deny the report," Commonwealth Bank of Australia said in a note.

"Either way, the pound is likely to remain volatile and is at risk of sudden drops because of uncertainty about government debt sustainability and the dislocation in UK pension (superannuation) funds that has spilled over into UK government bond market."

The central bank has made numerous attempts over the past two weeks to try and restore order in markets, after the surge in yields last month threatened to overwhelm pension schemes that had loaded up on leveraged derivatives.

Pension funds meanwhile have been trying to raise cash by selling off UK government, index-linked and corporate bonds.

The heavy selloff in gilts has pushed 10-year yields up by 100 basis points since Finance Minister Kwasi Kwarteng unveiled his economic plan and controversial tax proposals.

"They (representatives from the central bank) told us that they were watching the LDI managers closely to see whether they had managed to generate enough liquidity for their clients to cope with margin calls and would decide whether to extend the facility on Thursday or Friday,” the FT quoted one banker as saying.

The BoE on Tuesday expanded its programme of daily bond purchases to include inflation-linked debt, citing a "material risk" to British financial stability and "the prospect of self-reinforcing 'fire sale' dynamics".

By buying bonds, the BoE is seeking to reverse what it sees as "dysfunction" in the bond market. Specifically, the central bank is seeking to address problems facing pension funds. They were forced to stump up vast amounts of emergency collateral in liability-driven investments (LDI), which use derivatives to hedge against shortfalls in pension pots, after gilts dropped sharply in value. (Reporting by Shubham Kalia in Bengaluru, Ankur Banerjee and Vidya Ranganathan in Singapore ; Editing by Kim Coghill & Simon Cameron-Moore)