Pound Rises, Gilts Fall as Barclays, Stocks Fuel Risk Appetite

By Lukanyo Mnyanda

March 16 (Bloomberg) -- The U.K. pound advanced to the highest level in a week against the dollar and gilts fell after Barclays Plc reported a “strong start” to 2009, spurring gains by stocks amid a resumption in risk appetite.

The pound climbed for a second day versus the euro as the FTSE 350 Banks Index rose to a two-week high after the U.K.’s third-largest lender said its businesses continue to perform well. The British currency also gained as finance chiefs from the Group of 20 vowed to work together to clean up the toxic assets that led to more than $1 trillion in losses.

“Any spike in risk appetite will help sterling as it’s one of the most under-valued currencies among the Group of 10,” said Henrik Gullberg, a foreign exchange strategist in London at Deutsche Bank AG, the world’s biggest currency trader. “I’m pretty positive.”

The pound strengthened as much as 1.6 percent to $1.4229, the highest level since March 6, and was at $1.4198 by 11:11 a.m. in London. It appreciated 0.6 percent to 91.81 pence per euro.

The MSCI World Index of stocks rose for a fifth straight day, climbing 1.4 percent. The FTSE 100 Index gained 2 percent.

The pound slumped 23 percent versus the euro and 26 percent against the dollar in 2008 as the economy slipped into its first recession since 1991, prompting the Bank of England to cut the benchmark interest rate to a record low this year.

Gains my be limited as the economy remains mired in the throes of its worst contraction for three decades, threatening to exacerbate losses at banks. The average asking price for a home dropped an annual 9 percent this month as buyers struggled to obtain home loans, Rightmove Plc said today.

Investors should sell the pound against the dollar and the euro during the next 24 hours, analysts at UBS AG, the second- biggest foreign-exchange trader, wrote in a note today.

Gilts Slip

The yield on the 10-year gilt rose four basis points to 2.98 percent. The 4.5 percent security due March 2019 slipped 0.29, or 2.9 pounds per 1,000-pound face amount, to 113.03. The yield on the two-year note climbed six basis points to 1.45 percent. Bond yields move inversely to prices.

The difference in yield, or spread, between two- and 10-year notes narrowed to the least in more than two months. The gap was at 153 basis points today, the least since Jan. 9. A so-called narrowing of the spread indicates investors are buying fewer shorter-dated gilts, which are perceived to be safer.

U.K. bonds earned investors 1.3 percent this year, compared with a 2.9 percent loss for Treasuries, according to Merrill Lynch & Co.’s U.K. Gilts and U.S. Treasury Master indexes.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net