Sterling erases gains vs dlr after Paulson comments

Tue, Sep 23 2008, 12:30 GMT
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LONDON, Sept 23 (Reuters) - Sterling was steady against the dollar on Tuesday, erasing earlier gains in volatile trade as U.S. Treasury Secretary Henry Paulson urged Congress not to delay in approving the $700 billion planned bailout of the floundering financial system.

In testimony prepared for delivery to the Senate Banking Committee, Paulson said: "We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil".

U.S. Federal Reserve Chairman Ben Bernanke also urged immediate action and said markets are under "extraordinary stress". See and [ID:nN23361994].

The news caused the pound to come off session highs against the dollar of $1.8633. At 1137 GMT, the UK currency was steady at $1.8565. The euro was down 0.1 percent at 79.55 pence <EURGBP=>.

Worries that political wrangling over the costly package will drag on into next week have resulted in volatile trading on currency markets.

"There is a great deal of nervousness among traders in the market, which will remain until the clouds surrounding the bailout plan have been cleared up," said James Hughes, market analyst at CMC Markets.

Markets are now awaiting the question and answer session that will follow Paulson and Bernanke's testimonies, scheduled at 1330 GMT.

The pound earlier came under pressure after data from the British Bankers' Association showed UK mortgage approvals slumped to a record low in August as the housing market continues to suffer the effects of the credit crunch.

The news caused shares in HBOS Plc to fall by over 10 percent as analysts said the slump in mortgage lending is raising concerns that a takeover by Lloyds TSB will not solve its funding problem. See [ID:nLN289289].

In an otherwise quiet week for UK data, the next release of note will be the latest retail sales survey from the Confederation of British Industry on Wednesday.

(Reporting by Jessica Mortimer; editing by Stephen Nisbet) Keywords: MARKETS STERLING/MIDSESSION

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