Pound Rises Versus Euro, Dollar as Stocks to Climb a Second Day

By Kim-Mai Cutler

Oct. 14 (Bloomberg) -- The British pound rose against the euro and dollar amid speculation stocks will recover for a second day after the government bailed out banks including HBOS Plc and similar measures were adopted in Europe and the U.S.

The FTSE 100 Index, a U.K. equity benchmark, may jump 283 to about 4,539, according to IG Markets in Melbourne. The measure jumped 8.3 percent yesterday, rebounding from its worst weekly drop since 1987, after the government invested 37 billion pounds ($64 billion) to rescue three lenders. France and Germany are among European nations that committed $1.8 trillion to assist banks, while the U.S. will provide $125 billion to nine banks, including Citigroup Inc.

The U.K. ``plan is being used as a blueprint for similar recapitalization measures on both sides of the Atlantic, and sterling has reacted positively as a result,'' Ashley Davies, a currency strategist in Singapore at UBS AG, wrote today in a research report.

The pound advanced to 78.21 pence per euro as of 7:33 a.m. in London, rising for a third day, from 78.31 yesterday. Against the dollar, the U.K. currency increased to $1.7474, from $1.7341.

The proposed cash injections by the U.S. government are in exchange for preferred shares and are part of a $700 billion rescue approved by Congress. They follow similar moves by European leaders to unfreeze credit markets by helping beleaguered banks. The other companies are Goldman Sachs Group Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., said people briefed on the plan.

Home Sales

Countries in the euro region, including Spain, the Netherlands and Austria also said yesterday they would take stakes in lenders as part of the bailout plan.

Gains by the pound may be limited after an industry report showed home sales fell in September to the lowest level in at least three decades, led by London, as the financial crisis prompted price declines across the nation.

Estate agents and surveyors sold an average of 11.5 homes last month, the lowest level recorded since the series began in 1978, the Royal Institution of Chartered Surveyors said in a report today. In London, the figure was 8.3. The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 84, compared with 82 in August.

U.K. government bonds dropped by the most in four weeks yesterday after the country's debt-sales office said it plans to sell securities to raise funds to help British banks.

Rate Bets

The yield on the 10-year gilt advanced 20 basis points to 4.66 percent. The price of the 5 percent security due March 2018 slid 1.51, or 15.1 pounds per 1,000-pound ($1,746) face amount, to 102.55. The yield on the two-year note surged 19 basis points to 3.72 percent. Bond yields move inversely to prices.

The Debt Management Office said it will provide details of the debt-sales program today.

Traders added to bets policy makers will lower borrowing costs again after cutting the main rate by half a percentage point on Oct. 8, in concert with other central banks. The implied yield on the December short-sterling futures contract was at 4.82 percent yesterday, from 5.44 percent a week ago.

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net