U.K. Pound Little Changed Versus Euro Before Manufacturing Data

By Agnes Lovasz

Oct. 7 (Bloomberg) -- The British pound was little changed against the euro before a government report that will probably show manufacturing fell in August from a month earlier, when it dropped to the lowest level in at least 1 1/2 years.

Factory output declined 0.2 percent from July, according to the median forecast from 27 economists in a Bloomberg survey. The Bank of England decides on interest rates in two days. Australia's central bank cut its main rate today by one percentage point, sparking speculation other nations may follow. Global stock markets sank yesterday on concern the credit crisis is deepening.

``Without some sort of policy response supporting confidence, there's no obvious reason to see any of the European currencies strengthen,'' said Stuart Bennett, a London-based senior European strategist at Calyon, the investment-banking unit of France's Credit Agricole SA. ``With equity markets in freefall, there's no great reason to hold sterling at the moment.''

The pound was at 77.38 pence per euro as of 6:52 a.m. in London, from 77.41 pence yesterday, when it rose for a third day versus the European common currency. Against the dollar, the British currency strengthened to $1.7536, from $1.7441.

The 14-day relative strength index of the pound against the dollar dropped to 31.6 yesterday, close to the 30 level that signals the currency may be poised to rebound. The index is a technical chart used by traders to indicate when the price of a currency or asset is about to change direction.

Calls for Cuts

Policy makers should cut the key rate by a half point to 4.5 percent this week after business confidence had an ``alarming'' drop in the past quarter, the British Chambers of Commerce said today. Sentiment, based on a survey of almost 5,100 companies, fell to the lowest since the data began in 1989, the London-based lobby group said. Indexes measuring sales in services and manufacturing, making up 90 percent of the economy, showed contraction at a faster pace than in the second quarter.

Australia's central bank cut the benchmark rate by the most since a recession in 1992. Today's reduction to 6 percent, twice as much as most economists forecast, is aimed at getting banks to resume lending.

``There's some talk around that there could be a coordinated global interest-rate cut tonight and that the Reserve Bank of Australia is preempting that,'' said Simon Bonouvrie, a portfolio manager at Platypus Asset Management in Sydney.

Chancellor of the Exchequer Alistair Darling said yesterday he'd move more quickly to preserve stability in Britain's banking system as lawmakers and former policy makers called for him to provide cash for equity stakes.

`Move Quickly'

``We must move far more quickly,'' Darling told lawmakers in London. ``These are exceptional times. All practical options must remain open to us.''

The pound slid yesterday to its lowest level in 2 1/2 years against the dollar on speculation the central bank will cut rates to revive the economy and as the credit crisis deepened across Europe. BNP Paribas SA agreed to take control of Fortis in Belgium and Luxembourg, while in Germany a 50 billion-euro rescue plan was agreed on for Hypo Real Estate Holding AG.

The Bank of England will probably lower the key rate by a quarter point to 4.75 percent on Oct. 9, according to the median of 61 economists surveyed by Bloomberg. The Office for National Statistics releases the manufacturing report at 9:30 a.m. in London today.

U.K. government bonds rose yesterday, with two-year notes posting their biggest daily gain since June 1998, as investors sought refuge in the safest securities. The yield on the two-year gilt dropped 37 basis points to 3.67 percent. The 4.75 percent securities due in June 2010 climbed 0.6, or 6 pounds per 1,000 pound ($1,752) face amount, to 101.73.

The yield on the 10-year gilt slid 19 basis points to 4.22 percent. Bond yields move inversely to prices.

Britain entered a recession in July, according to the European Commission and the Confederation of British Industry, the country's biggest business lobby.

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