Sterling knocked by diving housing shares

Wed Jul 2, 2008 9:09am BST

LONDON (Reuters) - The pound fell broadly Wednesday as tumbling housing shares and a profit warning from iconic retailer Marks and Spencer cast a further shadow over the already slowing economy.

Confidence in the housing sector was knocked after Taylor Wimpey (TW.L: Quote, Profile, Research) failed to complete a capital raising. Taylor Wimpey shares fell more than 50 percent at one point, leading others south -- including Barratt Developments (BDEV.L: Quote, Profile, Research).

Separately, shares in Marks and Spencer (MKS.L: Quote, Profile, Research) hit a 7-year low after the clothes, food and homewares group issued a shock profit warning, adding that others were likely to follow suit in a deepening consumer downturn.

Analysts said sterling was feeling the pinch of deteriorating economic conditions, set against the impact of rising price pressures.

"Sterling had been doing far too well in the last few days and maybe today's information is going to push it down. All the news we are receiving from the housing sector is really catastrophic at the moment," said Russell Jones, head of fixed income an currencies global research at RBC Capital Markets.

"It's further evidence that the economy is in deep trouble...and that doesn't inspire confidence in currency markets."

By 8:46 a.m., the pound was down 0.2 percent at $1.9902, having hit a 2-month high above the key $2 mark on Tuesday.

The euro was up 0.45 percent at 79.50 pence.

The euro was gaining broader traction, having earlier hit a 2-month high versus the dollar just shy of $1.5850 as markets anticipated a well-telegraphed European Central Bank interest rate hike to 4.25 percent on Thursday.
Analysts also cited jitters ahead of Thursday's U.S. employment report.

(Additional reporting by Toni Vorobyova)

(Reporting by Veronica Brown; Editing by Chris Pizzey)