Pound Drops Versus Euro as House Prices Fall for Ninth Month

By Lukanyo Mnyanda and Andrew MacAskill

Aug. 28 (Bloomberg) -- The U.K. pound fell to the lowest level in four months against the euro after a private report showed house prices fell a ninth month.

The pound fell for a second day after the survey from Nationwide Building Society, the nation's fourth-biggest mortgage lender, showed the average value of a home dropped 1.9 percent in August, exceeding economists estimates for a decline of 1.5 percent. Loans approved for house purchases slumped 65 percent last month, the British Bankers' Association said yesterday.

The U.K. currency fell to as low as 80.61 pence per euro by 7:10 a.m. in London, the lowest since April 17, from 80.23 yesterday. The pound was little changed at $1.8348, showing a decline this month of 7.5 percent. It's headed for the biggest monthly loss since October 1992, when it sank 12 percent.

U.K. government bonds dropped with Treasuries and European bonds yesterday, reversing an earlier gain that pushed the yield on the 10-year bond to the lowest level since April 16.

``We know that the economy is very weak and the numbers, if anything, are deteriorating further,'' said Sean Maloney, a fixed-income strategist at Nomura International Plc in London. ``The market is now waiting for the Bank of England to get the impetus to come in and support things and then gilts will really get moving.''

The yield on the 10-year gilt rose 1 basis point to 4.50 yesterday. The 5 percent security due March 2018 fell 0.08, or 80 pence per 1,000-pound ($1,8373) face amount, to 103.82.

The yield on the two-year gilt, which is more sensitive to interest-rate expectations, increased 2 basis points to 4.41 percent. Bond yields move inversely to prices.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Andrew MacAskill in London at amacaskill@bloomberg.net