Oct. 31 (Bloomberg) -- The pound surged the most in a year against the euro amid concern European leaders will struggle to find funding to contain the region’s debt crisis, spurring demand for the relative safety of the U.K. currency.
Gilts gained for a second day as U.K. reports showed business expectations slumped, mortgage approvals fell and house prices declined. Sterling climbed as much as 4.1 percent against the yen after Japan intervened to weaken its currency. U.K. non- residents boosted their holdings of gilts by the most since April 2010 last month, central-bank data showed today.
The pound is “really playing second fiddle to other currencies at the moment,” said Chris Walker, a London-based foreign-exchange strategist at UBS AG. “Whether it’s events in the euro zone or even overnight yen intervention, that’s really been pushing it around.”
Sterling advanced 1.6 percent to 86.30 pence per euro at 4:10 p.m. London time after rising as much as 1.7 percent, the most since Oct. 26, 2010. The currency gained 2.8 percent to 125.81 yen. The pound was little changed at $1.6125, after rising to $1.6167, the strongest since Sept. 6.
European governments are running into resistance as they seek to use this week’s Group of 20 summit to garner financial support for their rescue fund. Pledges of hard cash are proving hard to come by as G-20 members, due to meet in Cannes, France, this week, press for more details of the plan to solve Europe’s debt woes.
The pound weakened earlier against the dollar after Lloyds Bank Corporate Markets said its index of business expectations for the economic outlook fell to the weakest since March 2009.
A separate report by property researcher Hometrack Ltd. showed the average cost of a U.K. home fell 0.2 percent from September. The Bank of England said lenders granted 50,967 loans to buy homes, down from 52,347 in August.
The pound has weakened 1.4 percent in the past month, extending its decline over the year to 3.8 percent, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations.
The 10-year gilt yield fell 17 basis points to 2.44 percent. The rate on the two-year note slipped two basis points to 0.53 percent.
U.K. non-residents bought 12 billion pounds more gilts than they sold in September, according to data published today by the Bank of England. They sold a net 731 million pounds in August, the data show.
Gilts have returned 11 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, beating the 6.2 percent for German bunds and 7.3 percent gain for U.S. Treasuries.
--With assistance from Paul Dobson and Simon Kennedy in London. Editors: Nicholas Reynolds, Peter Branton
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