By Matthew Brown Aug. 6 (Bloomberg) -- The pound declined against the dollar and the euro after the Bank of England unexpectedly increased its asset-purchase plan by 50 billion pounds ($84 billion) and said that financial conditions remain “fragile.” The U.K. currency also fell versus the yen as the central bank’s nine-member Monetary Policy Committee said it expects the quantitative-easing program to take another three months to complete and will be “kept under review.” The euro stayed lower versus the dollar after the European Central Bank left its main refinancing rate at a record low. The yen declined after KBC Group NV and Aviva Plc reported earnings that beat analysts’ estimates, sapping demand for the Japanese currency as a refuge. “The pound is selling off on the Bank of England’s expansion,” said Geoffrey Yu, a currency strategist at UBS AG in London. The currency may “rally later as the market becomes reassured about growth prospects.” The pound slid to $1.6854 as of 12:45 p.m. in London, from $1.6989 yesterday, the biggest drop in more than two weeks. It weakened to 85.32 pence per euro, from 84.81 pence. The euro fell to $1.4383, from $1.4404. The yen depreciated to 95.51 per dollar from 94.97, and to 137.37 per euro, from 136.79. Eight of 12 primary dealers surveyed by Bloomberg News expected the U.K. central bank to announce a pause in its five- month program of bond purchases today. The bank, led by Governor Mervyn King, has spent 125 billion pounds on the program since March. Policy makers left the key interest rate at a record low of 0.5 percent today. ‘Deeper’ Recession “The recession appears to have been deeper than previously thought,” the central bank said in a statement. “Gross domestic product fell further in the second quarter of 2009. But the pace of contraction has moderated and business surveys suggest that the trough in output is close at hand.” The yen dropped as much as 0.5 percent against the dollar and the euro after a Ministry of Finance report showed the nation’s investors bought 10.2 billion yen ($107 billion) more overseas stocks than they sold last week. Stocks rose around the world as Belgium’s KBC Group reported a surprise profit, U.K. insurer Aviva posted a first- half profit that beat analysts’ estimates, and TDK Corp., the world’s biggest maker of magnetic heads for disk drives, reported a second-quarter net loss that was less than analysts estimated. The MSCI World Index advanced 0.4 percent and the Dow Jones Stoxx 600 Index of European stocks rose 0.9 percent. ‘Bias Towards Risk’ “Higher stocks in Asia and Europe are consistent with a bias towards risk today and a softer yen across the board,” said Jane Foley, research director in London at Forex.com, an online currency trader. The VIX Index, a measure of stock-market volatility known as Wall Street’s fear gauge, fell to as low as 24.86 yesterday, the least since July 28. The ECB, led by President Jean-Claude Trichet, kept the main refinancing rate at 1 percent, in line with the forecasts of all 52 economists surveyed by Bloomberg. Trichet holds a press conference at 2:30 p.m. in Frankfurt to discuss the decision. German factory orders posted their biggest increase in two years in June, the Economy Ministry in Berlin said today. The Australian dollar rose after the nation’s statistics bureau said the number of people employed in Australia rose by 32,200 from June. A decline of 18,000 was expected, according to a Bloomberg News survey. The Aussie traded at 84.18 U.S. cents from 84.06 cents yesterday, and traded as high as 84.61 cents earlier. It climbed to 80.41 yen from 79.82 yen. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net

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