The pound strengthened against the dollar, snapping a two-day decline, as optimism that euro-area leaders are acting to ease the region’s debt crisis spurred demand for riskier assets such as stocks. Sterling also rose versus the yen and gilts fell as an index of U.K. services unexpectedly gained in November. Italian Prime Minister Mario Monti proposed 30 billion euros ($40 billion) of new austerity measures yesterday, while German Chancellor Angela Merkel and French President Nicolas Sarkozy meet today before a European Union summit Dec. 9. The European Central Bank will cut interest rates this week, according to the median forecast in a survey of economists by Bloomberg. “Markets in general are cautiously optimistic going into the EU summit and ECB meeting, hoping really that the European authorities will move towards putting in place a more effective policy response,� said Lee Hardman, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Those expectations are weighing on the safe-haven currencies like the dollar and the yen today. Part of that as well is the services PMI came in slightly better than expectations.� The pound was 0.2 percent stronger at $1.5632 at 11:06 a.m. London time. It appreciated 0.3 percent to 122.010 yen and was 0.2 percent weaker at 85.99 pence per euro. The FTSE 100 Index of stocks rose for the sixth day in the past seven, advancing 0.4 percent. The Stoxx Europe 600 Index climbed 0.6 percent. Sterling Performance Sterling has appreciated 1.5 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track a basket of 10 developed-nation currencies. The pound’s advance has been surpassed by the dollar, the yen and the Canadian and Australian dollars. A gauge of services activity based on a survey of purchasing managers rose to 52.1 from 51.3 in October, according to Markit Economics and the Chartered Institute of Purchasing and Supply. The median of 24 estimates in a Bloomberg News survey called for a drop to 50.5. The Engineering Employers Federation cut its U.K. growth forecasts and said manufacturers expect the industry to stagnate in the first quarter. The EEF sees gross domestic product rising 1 percent in 2012 instead of the 2 percent forecast in September, with factory output growing 0.9 percent rather than 2.2 percent, Chief Economist Lee Hopley told reporters at a briefing in London on Dec. 2. A manufacturing survey published today showed companies predict flat output and a “modest contraction� in orders in the first quarter, Hopley said. The 10-year gilt yield rose one basis point to 2.30 percent. The yield on two-year notes also climbed one basis point, to 0.39 percent. Gilts have returned 14 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. European benchmark German bunds made 7.4 percent, with U.S. Treasuries gaining 9.2 percent. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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