The pound rose against the euro and the dollar after an industry report showed U.K. home sellers raised asking prices in May by the most in more than a year. The British currency climbed for the third day as signs the worst of the recession may be over sent the FTSE 100 Index 1.9 percent higher, its biggest gain in more than two weeks. Gilts advanced as the Bank of England bought government bonds maturing in 10 to 25 years as part its drive to lower borrowing costs. “We see further gains ahead for sterling, especially against the euro,” Gareth Berry, an analyst in London at UBS AG, the world’s second-biggest currency trader, wrote today in a report. Investors have “focused on the signs of stabilization emerging from the U.K. economy.” The pound appreciated to 88.24 pence per euro as of 3:28 p.m. in London, from 88.93 pence on May 15. It also rose to $1.5281, from $1.5180. The average cost of a home climbed 2.4 percent from April, Rightmove Plc, the operator of the biggest U.K. residential property Web site, said today, adding to evidence Europe’s second-largest economy is recovering from its deepest slump in three decades. It was the largest increase since February 2008. The pound’s 20 percent drop in the past year made Britain the first choice when Schroders Plc started buying real estate in Europe last month, according to Neil Turner, the Wiesbaden, Germany-based executive in charge of the money manager’s new 300 million-euro property fund. “Weaker sterling makes U.K. property more attractive,” Turner said. “The U.K. property market is a screaming buy compared to rivals in continental Europe.” Gilts Advance Gilts rose as the Bank of England bought 3.5 billion pounds ($5.4 billion) of gilts. The central bank said May 7 it will expand its asset-purchase program to 125 billion pounds from 75 billion pounds to spur growth and fight deflation. Former U.K. finance minister Norman Lamont, who drew criticism during the 1990s recession for announcing the “green shoots” of recovery, said he wouldn’t use the phrase again now because the banking system remains broken. “There are some optimistic signs but I wouldn’t call them green shoots,” Lamont said today at the Banking Outlook 2009 Conference in London. “The rate of decline in the economy is decelerating. For a recovery, the first thing that has to happen is, you stop falling.” The yield on the 10-year gilt fell six basis points to 3.48 percent. The two-year note yield slipped six basis points to 1 percent. Bond yields move inversely to prices. Bonds advanced last week after the Bank of England said it expects a “protracted” economic recovery in the U.K., where unemployment is the highest since Prime Minister Gordon Brown’s Labour Party came to power in 1997. DMO Debt Sales The U.K. plans to sell a record 220 billion pounds of gilts this fiscal year, 50 percent more than last year, to help drag the economy out of the recession. The Debt Management Office didn’t find enough buyers at a sale of gilts on March 25, the first so-called failed auction since 2002. The debt office is sounding out investors and so-called gilt-edged market makers today to discuss the bond-sale schedule for the next quarter. Minutes of the meeting will be released tomorrow and the auction calendar published on May 22. “Bonds this week will be highly sensitive to the DMO’s issuance calendar,” said John Wraith, head of sterling interest-rate strategy in London at RBC Capital Markets. “This will be the single biggest supply announcement ever, making the choice of bonds all the more important.”

Source