The pound advanced against most of its major peers as investors sought the relative safety of U.K. assets amid global financial turmoil sparked by the U.S. credit- rating downgrade. Gilt yields approached record lows amid speculation that the Federal Reserve may maintain stimulus measures. Stocks slumped around the world for a second day and gold surged to a record in the wake of last week’s Standard & Poor’s downgrade of the U.S. AAA ranking. The pound pared gains versus the dollar after a report showed U.K. manufacturing unexpectedly fell. “The U.K. is still seen as a safe haven in an uncertain world, and that’s benefiting sterling,” said Shant Movsesian, a strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. Sterling strengthened 0.3 percent to $1.6364 at 11:39 a.m. in London. The pound was 0.3 percent weaker at 87.13 pence per euro, after reaching 86.43 pence on Aug. 5, the strongest since May 27. Britain’s currency lost 0.6 percent to 126.13 yen. Benchmark gilt yields have slumped 87 basis points this year as investors favored the relative safety of U.K. securities amid a worsening euro-region debt crisis. Yields on the securities have also fallen as the biggest government spending cuts since World War II reduced prospects for economic growth, boosting speculation the Bank of England will keep its main interest rate at a record low 0.5 percent. Gilt Yields “The coalition government has taken the unpleasant but necessary step of cutting spending aggressively, in stark contrast to Europe where austerity measures have been much more gradual,” Movsesian said. Civil unrest that began in north London before spreading to other parts of the capital and regional British cities is having little impact on the pound and gilts, according to 4Casts’ Movsesian. Gilts fluctuated, with the yield on the 10-year security little changed at 2.64 percent after reaching a record low 2.59 percent on Aug. 5. Two-year note yields were one basis point lower at 0.57 percent. “Gilts are still a very attractive safe-haven asset,” said John Wraith, a fixed-income strategist at Bank of America Corp.’s Merrill Lynch unit in London. “There’s a lot of risk aversion out there and the growth outlook is slowing, all of which favors gilts.” U.K. factory output declined 0.4 percent in June from the previous month, when it rose 1.8 percent, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for a 0.2 percent gain. The goods trade gap widened as a decline in exports outpaced a fall in imports. House-price declines in the U.K. eased in July, while a measure of London home values jumped to its highest in more than a year, the Royal Institution of Chartered Surveyors said in a separate report. To contact the reporter on this story: Garth Theunissen in London at gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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