By Anna Rascouet and Morwenna Coniam Sept. 21 (Bloomberg) -- The pound fell for the third day against the dollar as U.K. stocks dropped for the first time in seven days, sapping demand for the currency. The British currency also weakened to its lowest level in five months against the euro earlier as Standard Bank Plc cut its forecasts for pound. The Bank of England said “the long-run sustainable real exchange rate” for sterling may have fallen during the financial crisis. The FTSE 350 Banks Index of financial shares declined as much as 2.2 percent. “The market isn’t enamored with sterling,” said Steven Barrow, head of Group of 10 currency research in London at Standard Bank. “The Bank of England is giving a good reason for this to be the case.” Sterling declined to $1.6187 as of 2:43 p.m. in London, from $1.6271 at the end of last week. It depreciated to 90.43 pence per euro, after trading at 90.78 pence earlier, the weakest level since April 24. Standard Bank said the pound will be at 95 pence per euro and $1.63 in six months. Its previous forecasts were 86 pence per euro and $1.74. The yield on the two-year gilt increased 3 basis points to 0.85 percent. The 10-year note yield was little changed at 3.74 percent. The difference in yield, or spread, between the two securities was at 287 basis points, within 3 basis points of the most since at least January 1992. The financial crisis began to narrow the trade gap between nations with trade deficits and surplus countries such as China by lowering domestic demand and prompting the depreciation in the British currency and its U.S. counterpart, the Bank of England said in its quarterly bulletin published today. House Prices Sterling has fallen 5.9 percent against the euro since the beginning of August and 2.9 percent versus the dollar partly as investors speculated the central bank will have to increase a program of asset purchases to revive the economy. The pound declined today even as Rightmove Plc said U.K. home sellers raised asking prices in September. The average cost of a home rose 0.6 percent after dropping 2.2 percent in August, according to Rightmove, Britain’s biggest residential property Web site. “The latest evidence suggests that the U.K. and other major economies are starting to recover from the deep recession triggered by the global financial crisis,” central bank policy maker Andrew Sentance said in a speech in London today. The pound has gained almost 12 percent against the dollar this year, and 5.6 percent compared with the euro. British financial stocks fell after people familiar with the matter said Royal Bank of Scotland Group Plc, the largest U.K. lender to be owned by the government, was in talks with its shareholders to test appetite for an expansion of capital. The stock dropped as much as 7.1 percent in London trading today, the most among members of the FTSE 100 Index.

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