Pound Climbs Against Dollar, Euro for Second Day as Stocks Gain

By Agnes Lovasz and Lukanyo Mnyanda

Oct. 29 (Bloomberg) -- The pound rose against the dollar and euro for a second day on speculation a rally in stocks will bolster demand for the British currency.

A two-day gain by the pound versus the U.S. currency would be the first in more than two weeks as the FTSE 100 Index, a U.K. equity benchmark, soared 4.9 percent. Stocks surged yesterday in the U.S. and rose in Asia today. Chancellor of the Exchequer Alistair Darling will pledge extra borrowing today to support the economy as it enters a recession.

The pound advanced to $1.6001 as of 8:12 a.m. in London, from $1.5901 yesterday. The U.K. currency hasn't risen for two straight days since Oct. 14. Against the euro, the pound climbed to 79.44 pence, from 79.78 pence. The British currency fell 0.5 percent to 155.05 versus the Japanese yen after surging yesterday by the most in at least 37 years.

Gains by the pound may be limited as a Bank of England report today may show lending to consumers slowed and mortgage approvals stayed at the lowest level since at least 1999. Policy makers will probably cut their key interest rate half a percentage point to 4 percent at the next policy meeting on Nov. 6, according to the median estimate of 30 economists in a Bloomberg survey. The U.S. Federal Reserve announces its rate decision today.

The Bank of England lowered the main interest rate by a half point this month to 4.5 percent in a joint action with central banks around the globe to stem the financial crisis.

Mortgage Approvals

Lenders approved 32,000 loans for house purchase in September, matching the August figure, the central bank will say, according to a Bloomberg survey of economists. A separate report will probably show net consumer credit, which includes credit cards, personal loans and overdrafts, rose by 1 billion pounds, after a 1.2 billion-pound increase in August, according to a Bloomberg survey. The reports are due at 9:30 a.m. in London.

The British currency had its biggest intraday decline versus the dollar in at least 37 years on Oct. 24, when a government report showed the economy contracted more than twice as much as economists predicted, probably marking the start of a recession. In the second quarter, there was no growth. Bank of England Deputy Governor John Gieve said in a speech yesterday that financial markets are under ``acute'' stress.

U.K. government bonds were little changed, with the yield on the two-year gilt at 3.13 percent. The 4.75 percent security due June 2010 slipped 0.01, or 10 pence per 1,000-pound ($1,601) face amount, to 102.51. The yield on the 10-year note was at 4.40 percent. Bond yields move inversely to prices.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net