The pound advanced to its strongest against the euro in two weeks after a U.K. manufacturing index climbed in March to the highest level in five months. The British currency also rose for a second day versus the dollar as world leaders arrived today for the Group of 20 summit in London, where they aim to formulate plans to overcome the global recession. Gilts advanced after the U.K. sold all 3.5 billion pounds ($5 billion) of six-year notes at an auction and the Bank of England bought the same amount of securities as part of an asset-purchase program designed to lower borrowing costs. “Euro-sterling in the mid-to-low 90s is very, very overvalued,” said Martin McMahon, a Zurich-based currency strategist at Credit Suisse Group AG. “This quarter is probably the final leg of sterling weakness.” The British currency advanced to 92.39 pence per euro by 3:05 p.m. in London, from 92.56 pence yesterday, and traded at 91.55 pence earlier, its strongest level since March 16. The pound rose to $1.4353 from $1.4323. An index based on a survey of factories climbed to 39.1, from 34.7 in February, the Chartered Institute of Purchasing and Supply and Markit Economics said today. The pound has risen 0.2 percent against the dollar over the past month as policy makers announced the unprecedented step of printing money to buy government and corporate debt to lower borrowing costs as part of so-called quantitative easing. Gilt Sale “So far, sterling has not suffered markedly from the commencement of quantitative easing operations and we see the pound making gains, especially against the euro, as the European Central Bank looks increasingly likely to implement its own brand of quantitative easing,” Gareth Berry, a strategist at UBS AG in London, wrote in a note to clients today. The U.K. sold all the six-year gilts in its first offering of non-inflation linked bonds since failing to find enough buyers at an auction last week. The Debt Management Office, which oversees bond auctions on behalf of the Treasury, received 2.23 times as many bids as securities offered. The notes are within the range of gilts the Bank of England is buying as part of its so-called quantitative easing program. The central bank pledged on March 5 to buy gilts due within five and 25 years after saying it would begin quantitative easing. It bought 3.5 billion pounds of gilts today, getting 4.4 billion pounds of offers to sell, it said in a statement. Investor Appetite “There is appetite for issues that fall within the Bank of England’s quantitative easing zone,” said Richard McGuire, a fixed-income strategist in London at Royal Bank of Canada. “This shows the Bank of England needs to be there to support sufficient investor appetite, given the poor supply picture.” Gains in government bonds sent the yield on the two-year note five basis points lower to 1.12 percent. The 4.25 percent security due March 2011 climbed 0.09, or 90 pence per 1,000- pound face amount, to 105.93. The 10-year yield fell four basis points to 3.12 percent. Bond yields move inversely to prices. British government bonds lost 0.8 percent in the first quarter, according to Merrill Lynch & Co.’s U.K. Gilts Index. U.S. debt handed investors a loss of 1.4 percent, according to the firm’s U.S. Treasury Master Index.

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