British Pound Gains as Stocks Advance, Governments Help Banks

By Matthew Brown

Jan. 16 (Bloomberg) -- The pound rose for a third straight day as stocks around the world advanced and the Government pledged to help struggling homeowners pay their loans.

The British currency rose against the euro, the dollar and the Japanese yen as stock market gains indicated investors are prepared to move into what they consider to be riskier assets. The U.K. government said it will set aside 200 million pounds ($292 million) to help keep property owners who face repossession in England.

“It’s a positive pound story,” said Ian Stannard, a currency strategist in London at BNP Paribas SA. “Sterling is picking up some strength because of the equity market performance and the financial sector is regaining some support on the back of the reports in the U.S. and U.K. that the governments may provide some additional assistance.”

The pound rose 2 percent against the dollar to $1.4927 at 12:25 p.m. in London from $1.4632 yesterday. It gained as much as 1.3 percent versus the euro before trading at 88.96 pence from 89.61 pence. It’s 1.6 percent lower against the dollar this week.

The Dow Jones Stoxx 600 Index, a European benchmark, climbed 2.9 percent while the MSCI World Index rose 1.8 percent. Britain’s FTSE 100 Index advanced 2.7 percent.

The U.K. will hand money to housing associations, which will have the power to buy stakes in primary residences and then rent them back, the Department of Communities and Local Government said today. Only people earning less than 60,000 pounds a year will qualify for the program.

‘Helpful’

The U.S. government said today it will invest $20 billion in Bank of America Corp. and guarantee $118 billion of assets.

A decline in the pound last year helped support the British economy during the global slump, Deputy Bank of England Governor John Gieve said in a speech today. The pound dropped 23 percent decline against the euro and 26 percent versus the dollar in 2008.

“No one who has lived through the 70s, 80s and early 90s will be complacent about a fall in sterling,” Gieve said. “But there is no doubt that an appreciable fall in the pound, such as we have seen, has been helpful both in supporting exports and import substitution in the short term and in encouraging the rebalancing of the economy that we need in the medium term.”

U.K. government bonds fell, pushing the yield on the 10- year gilt up 12 basis points to 3.26 percent. The 5 percent security due March 2018 fell 1.02, or 10.2 pounds per thousand pound face amount, to 113.68. The two-year gilt yield rose six basis point to 1.61 percent.

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net