Pound Weakens Against Dollar for Second Day as Stocks Decline

By Matthew Brown and Gavin Finch

Jan. 12 (Bloomberg) -- The pound fell against the dollar for a second day as stocks dropped and a Confederation of British Industry report added to evidence of an economic slump.

The pound also slid versus the euro and the yen as every major stock index in Europe declined. U.K. banks, insurers and financial-services companies may cut as many as 15,000 jobs in the first quarter amid a plunge in business confidence, the CBI said. Prime Minister Gordon Brown will pledge 500 million pounds ($758 million) today to encourage hiring.

The pound’s fate “is dominated by how stocks are moving and perceptions of risk are moving, which is why we have this weakness,” said Steven Barrow, head of G10 currency research at Standard Bank Plc in London. “The correlation between the pound and risk aversion remains strong.”

The U.K&cls;. currency&cle; dropped to $1.5023 as of 12:44 p.m. in London, from $1.5164 at the end of last week. It weakened to 89.46 pence per euro from 88.78 pence, and to 135.10 yen from 137.09.

The Bank of England cut its key interest rate to 1.5 percent last week, the lowest level since it was formed in 1694, to prevent the recession from deepening. Revenue and profitability in the financial-services industry fell at a record rate in the October to December period as about 10,000 jobs were lost and business confidence skid, the CBI said today.

U.K. government bonds fell, pushing the yield on the two- year gilt up one basis point to 1.60 percent. The 4.25 percent security due March 2011 fell 0.02, or 20 pence per 1,000 pound face amount, to 105.57. The 10-year gilt yield rose four basis points to 3.17 percent.

The MSCI World Index fell 0.6 percent, its fourth straight decline. The U.K.’s FTSE 100 Index lost 0.5 percent.

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net