By Matthew Brown and Lukanyo Mnyanda Nov. 21 (Bloomberg) -- The pound rose, heading for weekly gains against the dollar and the euro, as stocks rebounded and traders bet interest-rate cuts by the Bank of England will help the U.K. to emerge faster from a recession. The pound also gained as the FTSE 100 Index advanced, trimming this week's decline, as commodity stocks rallied and the measure traded at the cheapest relative to earnings in at least 15 years. The pound declined 24 percent against the dollar in the past six months as the index fell 37 percent. ``The fortunes of the pound have been tied to the equity markets,'' Kenneth Broux, an economist at Lloyds TSB Group Plc in London, said in a telephone interview. ``Also, a lot of bad news has been priced in.'' The pound rose 2.4 percent to $1.5057 as of 11:26 a.m. in London, from $1.4727 yesterday and $1.4740 at the end of last week. Against the euro, the U.K. currency gained 0.9 percent to 83.78 pence, from 84.56 pence and 85.41 pence on Nov. 14. The Bank of England signaled two days ago it's prepared to cut borrowing costs further after lowering its main rate 1.5 percentage points on Nov. 6 to 3 percent, the lowest level since 1955. Traders are betting U.K. policy makers will reduce their benchmark rate by a further 75 basis points next month, according to a Credit Suisse Group AG index of derivatives. `A lot of convincing' ``It takes a lot to convince traders that interest rates are going to fall more than the 1 percentage point already predicted by futures,'' said Broux. Consumer prices rose 4.5 percent last month, down from 5.2 percent the month before and below economist estimates, the government said this week. The U.K. currency fell yesterday and bonds surged after a report showed retail sales declined a second month. The currency dropped the most in a week versus the euro yesterday as the Office for National Statistics said retail sales shrank 0.1 percent last month. It also dropped versus the yen as an increase in U.S. initial jobless claims prompted bets investors will sell higher-yielding assets. Rate Cuts Central banks worldwide are discussing deeper reductions in rates as economies founder. Federal Reserve policy makers predicted the U.S. will contract through mid-2009, with some prepared to cut rates further, a record of their latest meeting showed two days ago. The Swiss National Bank unexpectedly cut its key rate 100 basis points to 1 percent yesterday. The Bank of England, led by Governor Mervyn King, considered a bigger reduction in the benchmark rate than the 1.5 percentage points announced Nov. 6, according to minutes of its meeting released this week. Policy makers discussed the need for a cut to less than 2.5 percent, the minutes showed. The yield on the 10-year gilt was little changed at 3.88 percent, after falling below 4 percent yesterday for the first time in almost three years. The 5 percent security due March 2018 advanced 0.01, or 10 pence per 1,000-pound ($1,505) face amount, to 108.58. The yield on the two-year note gained five basis points to 2 percent. Yields move inversely to bond prices. To contact the reporters on this story: Matthew Brown in London on mbrown42@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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