Pound Near Nine-Month High After RICS Predicts Housing Rebound

By Anna Rascouet

Aug. 6 (Bloomberg) -- The pound traded near a nine-month high against the dollar after the Royal Institution of Chartered Surveyors said U.K. house prices will increase this year, reversing an earlier prediction for a decline.

The U.K. currency also held near its highest level in more than a month against the euro after Aviva Plc, the U.K.’s second-biggest insurer by market value, posted a first-half profit that beat analysts’ estimates. The average price of a home will be “slightly higher” in the fourth quarter of 2009 than it was in the same period last year, RICS said, reversing an earlier prediction for a drop of as much as 15 percent.

“The housing recovery is definitely helping sterling,” said Adam Cole, the London-based head of global currency strategy at RBC Capital Markets, a unit of Canada’s biggest bank. “Data in the U.K. has been so good this week that sterling is outperforming.”

Britain’s currency climbed 0.1 percent to $1.7000 as of 8:35 a.m. in London and traded as high as $1.7030. It advanced to $1.7043 yesterday, the strongest level since Oct. 21. The pound advanced 0.1 percent to 84.75 pence per euro.

Gilts declined before a Bank of England meeting at which policy makers may decide to pause the asset-purchase program it started in March to lower borrowing costs and spur growth.

The central bank decided in July to keep the plan at 125 billion pounds. Policy makers can still buy a further 25 billion pounds under the current agreement with the Treasury. Bank of England Governor Mervyn King will need permission from Chancellor of the Exchequer Alistair Darling to go beyond 150 billion pounds.

Gilts Fall

The yield on the two-year gilt climbed 1 basis point to 1.30 percent. The 4.25 percent security due March 2011 dropped 0.02, or 20 pence per 1,000-pound face amount, to 104.61. The 10-year note yield was little changed at 3.82 percent.

The Bank of England will keep the main interest rate at a record low of 0.5 percent, according to all 60 economists surveyed by Bloomberg. The central bank will announce its decision at noon in London today.

Aviva posted an operating profit of 1.69 billion pounds, beating the 1.23 billion-pound estimate of five analysts surveyed by Bloomberg. The stock rose as much as 7.63 percent to its highest level since Feb. 11. The FTSE 100 Index of U.K. stocks snapped a two-day decline, advancing 1.1 percent.

The outlook for U.K. house prices has undergone a “radical” improvement as concern wanes that more banks may falter, according to Michel Heller, head of strategy at property derivatives broker CBRE-GFI in London.

To contact the reporter on this story: Anna Rascouet in London arascouet@bloomberg.net.