By Anchalee Worrachate Nov. 24 (Bloomberg) -- U.K. gilts declined and the pound fell against the euro and the Swiss franc on speculation government borrowing will need to reach a record to replace slumping tax revenue and as rising stocks sapped demand for the safest assets. Ten-year gilts snapped four days of gains and the cost of hedging against losses on government bonds climbed to an all-time high as Chancellor of the Exchequer Alistair Darling presented a pre-budget report to Parliament today, in which he is outlining the government's spending plans. Britain will sell 138.1 billion pounds ($207 billion) of gilts this fiscal year, the most ever, according to the median forecast of 11 U.K. primary dealer banks surveyed by Bloomberg. U.K. stocks rose the most in three weeks. ``Spending will need to rise massively while revenue is falling,'' said Marc Ostwald, a fixed-income strategist at Monument Securities in London. ``We are going to have a colossal amount of gilt issuance. The yield on the 10-year note climbed six basis points to 3.92 percent as of 3:45 p.m. in London. The price of the 5 percent security due March 2018 fell 0.50, or 5 pounds per 1,000 pound ($1,509) face amount, to 108.33. The two-year yield also rose six basis points to 2.05 percent. Yields move inversely to bond prices. Gilts also fell as a U.S. government's pledge to help Citigroup Inc. cope with $306 billion of toxic assets supported stocks around the world, and reduced the allure for safest debt. The FTSE 100 Index jumped as much as 6.3 percent, the most in more than three weeks. `Short the Pound' The pound dropped to 85.08 pence per euro, from 84.37 pence last week. Against the Swiss franc, it fell to 1.8149 francs from 1.8263 on Friday. It rose against the yen to 145.26 yen from 143.17 yen. The currency traded at $1.5081, from $1.4925. Sterling lost 24 percent against the dollar since June. Investors should sell the pound against the Swiss franc because financial markets ``remain in deep recession mode,'' JPMorgan Chase & Co. said in a report. ``Stay long the creditor currencies and short the debtor currencies,'' analysts led by Jan Loeys, global head of market strategy, wrote in the report received late on Nov. 21. ``So, long Japanese yen against the dollar and the euro, and short the pound against the Swiss franc.'' A short position is a bet that a currency will fall. The amount of gilts sold this year may be more than double last year's issuance and up from the 80 billion pounds the government estimated in March, according to Bloomberg's survey. Rate-Cut Speculation Credit-default swaps showed the cost of hedging against losses on British government bonds rose to an all-time high, with five-year contracts rising four basis points to 87.5, according to CMA Datavision prices. Further declines in gilts may be limited by speculation the Bank of England will accelerate interest-rate cuts amid signs of a deepening global recession. The two-year yield fell below 2 percent on Nov. 20 for the first time in at least 16 years. ``We are likely to have a big rise in gilt supply,'' said Matteo Regesta, a fixed-income strategist at BNP Paribas SA in London. ``But I think the market will be able to absorb it. Bonds should continue to be underpinned by flight-to-quality as the world is still grappling with the crisis.'' The Bank of England cut its key interest rate by a greater- than-expected 150 basis points on Nov. 6 to contain the fallout from the global turmoil. Policy makers will lower the rate a further 75 basis points at the next meeting, according to a Credit Suisse Group AG index of probability based on overnight index-swap rates. To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net;

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