U.K. Pound Has Biggest Advance Against U.S. Dollar in a Month

By Kim-Mai Cutler

Oct. 13 (Bloomberg) -- The U.K. pound rose the most in a month against the dollar as the government handed a $64 billion bailout to Royal Bank of Scotland Plc, HBOS Plc and Lloyds TSB Group Plc.

The pound snapped three days of losses against the U.S. dollar as the U.K. government invested the funds to forestall a banking collapse. Royal Bank of Scotland and HBOS will cede majority control to the government, give Prime Minister Gordon Brown seats on their boards, the right to halt dividends and the power to limit executives' bonuses.

``The Bank of England and the U.K. Treasury are really taking the lead internationally in developing a clear and vigorous plan to fix problems in the financial system,'' said Robert Minikin, a London-based currency strategist for Standard Chartered. ``The action has been viewed very positively here and overseas in the foreign-exchange market.''



The British currency strengthened almost 2 percent to $1.7378 as of 2:20 p.m. in London, the most since Sept. 17. The pound was little changed at 78.62 pence per euro.

RBS will get 20 billion pounds, while HBOS and Lloyds will raise 17 billion pounds between them, the companies said in statements today. Barclays Plc said it will try to raise more than 6.5 billion pounds without the government's help. The funding will allow banks to boost their so-called Tier One capital ratio to more than 9 percent, the government said.

U.K. government bonds fell after euro-area leaders at the weekend agreed to support their banks and the Debt Management Office said it would sell more debt to cover the cost bailout of the nation's lenders.

The Bank of England was part of an effort by central banks globally to flood the financial system with dollars, backing up government efforts to restore confidence and helping to drive down money-market rates.

The yield on the 10-year note rose 15 basis points to 4.61 percent. The 5 percent security maturing March 2018 declined 1.1, or 11.1 pounds per 1,000-pound face amount, to 102.96. The two-year note yielded 3.65 percent, an increase of 14 basis points.

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