Pound Rises Versus Euro; Stocks Gain on Rescue-Plan Speculation

By Agnes Lovasz

Sept. 30 (Bloomberg) -- The pound gained against the euro as U.K. stocks advanced after U.S. lawmakers said they will seek to salvage the $700 billion bank-bailout package.

The British currency was little changed against the dollar after the biggest drop in more than 15 years yesterday as the U.K. government seized lender Bradford & Bingley Plc. The FTSE 100 Index and U.S. stock futures climbed as Judd Gregg, the Senate Banking Committee's ranking Republican, and Barack Obama, the Democratic presidential candidate, said the rescue plan, defeated in the House of Representatives yesterday, would eventually pass.

``There is a grinding improvement in equity market sentiment and that's driving the uptick in sterling,'' said Robert Minikin, a senior currency strategist at Standard Chartered. ``Yesterday we had a catastrophic day for the pound. Today we're getting a slightly better tone.''

The U.K. currency rose to 79.60 pence against the euro as of 11:27 a.m. in London, from 79.81 pence yesterday. It was also at $1.8021, from $1.8086 yesterday. It declined as much as 2.6 percent, to $1.7959 yesterday, the biggest slump since June 1993.

The FTSE 100 index rose 0.3 percent. Futures on the Standard & Poor's 500 index rallied 2.9 percent, and Dow Jones Industrial Average futures gained 2.2 percent.

The pound slid 9.6 percent against the dollar in the third quarter, poised for its biggest decline since the final three months of 1992, when the currency tumbled 15 percent. The pound is down 0.8 percent versus the euro in the period.

The pound fell against the U.S. currency after a report showed U.K. consumer confidence stayed near a record low this month. GfK's index of sentiment was at minus 32. The gauge reached minus 39 in July, the lowest level since the series began in 1974.

Bank Bailouts

Dexia SA, the world's biggest lender to local governments, received a 6.4 billion-euro ($9.2 billion) state-backed bailout, Belgian Prime Minister Yves Leterme said in a statement today.

Fortis became the largest European financial-services firm forced into a government rescue after Belgium, the Netherlands and Luxembourg said yesterday they would inject 11.2 billion euros by taking minority stakes in the bank's units in each country.

U.K. 10-year bonds fell and two-year gilts pared gains after U.S. senators said they will salvage the government's market-rescue plan. The yield on the 10-year gilt rose 3 basis points to 4.41 percent. The 4.75 percent security due March 2018 fell 0.22, or 2.2 pounds per 1,000-pound ($1,802) face amount, to 104.53.

The yield on the two-year note fell 3 basis points to 3.96 percent, after dropping to as low as 3.90 percent earlier. Bond yields move inversely to prices.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net