U.K. two-year gilts rose, snapping a three-day decline, after a report showed the U.K. economic recovery is struggling to gain momentum. Ten-year gilt yields were within three basis points of yesterday’s record low after the Office for National Statistics said gross domestic product expanded 0.6 percent in the third quarter, revising up a Nov. 24 estimate of 0.5 percent. Yesterday’s minutes of the Bank of England’s most recent meeting showed some policy makers said an increase in bond purchases, or quantitative easing, may be needed. The pound rose against the dollar. “It is only a marginal upward revision,� said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “The continued weakness of the U.K. economy will keep alive market hopes of further QE in 2012.� The two-year yield fell four basis points, or 0.04 percentage point, to 0.34 percent at 12:14 p.m. London time. The 2.25 percent security due March 2014 gained 0.08, or 80 pence per 1,000-pound ($1,570) face amount, to 104.195. Ten-year yields were three basis points lower at 2.04 percent after yesterday declining to 2.016 percent, the least on record. Gilts have returned almost 16 percent this year, including reinvested interest, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German government bonds have gained 9 percent and U.S. Treasuries have returned 9.5 percent, the indexes show. King Speech The pound appreciated for a third day against the dollar, adding 0.2 percent to $1.5704. It also climbed 0.2 percent versus the yen, to 122.66, and was little changed at 83.20 pence per euro, after strengthening yesterday to 83.03 pence, the strongest level since Jan. 13. Sterling has advanced 1.2 percent in 2011 against nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The dollar is 1 percent stronger and the euro has lost 1.2 percent, the indexes show. The Monetary Policy Committee, led by Governor Mervyn King voted unanimously to keep the target for gilt buying at 275 billion pounds after increasing it by 75 billion pounds in October, according to the minutes of their Dec. 7-8 meeting published yesterday. King and European Central Bank President Mario Draghi are scheduled to give a briefing in Frankfurt at 4:00 p.m. after a meeting of the European Systemic Risk Board. British house prices will “edge lower� next year as a supply shortage helps to limit the impact of weak economic growth, the Royal Institution of Chartered Surveyors said today. Prices will be about 3 percent lower at the end of 2012 than in the fourth quarter of this year, the London-based group said in a report. Total business investment rose 0.3 percent in the third quarter, the statistics office said in a separate announcement, beating the forecast of a 1.4 percent drop, the median estimate of 4 economists surveyed by Bloomberg News. To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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