Sterling boosted vs dlr on UK bank revival plan

Mon, Oct 13 2008, 08:10 GMT
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LONDON, Oct 13 (Reuters) - Sterling was lifted early against the dollar on Monday after Britain's Treasury stepped up efforts to revive its ailing financial sector by injecting capital into the country's biggest banks.

European governments also agreed to provide capital for banks short of funds due to a freeze-up in money markets -- a move that helped the single currency gain traction against the pound.

The UK Treasury on Monday said that three major British banks could take 37 billion pounds ($64 billion) in government money to boost their capital

Analysts said a positive response from the pound and UK stocks, both clawing up after hefty falls last week to five year-lows, reflected an easing in extreme risk aversion. But any respite would be brief.

"There's a little bit of risk back on the table but it is tentative as we've seen in the past there can be initial positive reaction to news like this, but very little patience about whether it works or not," Calyon deputy head of global FX research Daragh Maher said.

"(The UK plan) addresses one of the issues banks are facing at the moment and that's capitalisation. The markets will hope that liquidity and the interbank aspects of life will improve as well," he added.

By 0723 GMT, sterling was up 0.8 pct at $1.7181, after hitting session highs of $1.7222 earlier, while the euro was up 1.2 percent at 79.48 pence.

While markets were concentrating on bank news, the real economy is vying for attention this week with inflation in focus.

With recent data having painted a dire economic picture of the UK, producer price inflation figures due at 0830 GMT are expected to provide some welcome evidence that pressure at the start of the inflation pipeline is starting to ease.

Analysts expect the downward trend to be maintained as petrol prices continue to fall.

Meanwhile, recent hikes in gas and electricity prices by major UK suppliers are expected to have pushed consumer price inflation to 5 percent in September. The CPI reading is due on Tuesday.

(Reporting by Veronica Brown; Editing by Victoria Main) Keywords: MARKETS STERLING/OPEN

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