Pound Climbs Against Dollar for Third Day as Stocks to Advance

By Lukanyo Mnyanda

Oct. 30 (Bloomberg) -- The pound climbed for a third day against the dollar, rising 6.7 percent in the period, as the longest run of stock gains in two months underpinned demand for the British currency.

The FTSE 100 Index, a U.K. equity benchmark, will probably increase 108 to 4,350, according to Matt Buckland, a trader in London at CMC Markets. The MSCI World Index advanced for a third day, the longest streak since Aug. 22. Gains by the pound may be limited as an industry report showed house prices slid almost 15 percent in the year and a Bank of England policy maker David Blanchflower said interest rates need to fall ``significantly.''

The pound rose to $1.6594 as of 7:10 a.m. in London, from $1.6373 yesterday, when it posted its biggest two-day gain in more than 23 years. The U.K. currency is still down 6.8 percent since Sept. 30 versus the dollar, headed for a fourth monthly drop. Against the euro, the pound slipped to 79.38 pence, from 79.12 pence, snapping a two-day advance. It's little changed in the month versus the single European currency.

Asian stocks, bonds and currencies surged after China, Taiwan and the U.S. cut interest rates to boost bank lending and economic growth. The Federal Reserve yesterday pared its main rate by half a percentage point to 1 percent. The MSCI World rose 1.8 percent, bringing its gain over three days to 13 percent.

House Prices Slump

U.K. house prices fell by the most in at least 17 years in October as banks tightened credit and the prospect of a recession deterred potential buyers, Nationwide Building Society said. The average cost of a home fell 14.6 percent from a year earlier, the largest decline since the survey started in 1991, the mortgage lender said today. Prices slid 1.4 percent from September.

``Interest rates do need to come down significantly -- and quickly,'' Blanchflower said in a speech at the University of Kent in Canterbury, England, yesterday. ``If rates are not cut aggressively we do face the prospect of a relatively deep and long-lasting recession.''

The Bank of England lowered the main 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. The next decision by policy makers is on Nov. 6.

U.K. government bonds rose yesterday, with the yield on the two-year gilt sliding 8 basis points to 3.06 percent. The 4.75 percent security due June 2010 gained 0.11, or 1.1 pounds per 1,000-pound ($1,665) face amount, to 102.63. The yield on the 10- year note was little changed at 4.40 percent. Bond yields move inversely to prices.

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