By Gavin Finch Oct. 6 (Bloomberg) -- The pound fell against euro after a report showed U.K. manufacturing production unexpectedly slumped in August to the lowest level in 17 years, stoking speculation the economic recovery will stall. The British currency dropped to the lowest level in more than a week against the euro after the Office for National Statistics said an index of manufacturing slid to 87.8, the weakest reading since 1992. Factory output tumbled 1.9 percent from the previous month, it said, compared with a forecast 0.3 percent increase in a Bloomberg survey of economists. “The manufacturing data came as a surprise and that’s reflected in the pound,” said Henrik Gullberg, a strategist in London at Deutsche Bank AG, the world’s largest currency trader. “The market is very data sensitive at the moment. Data like this are obviously a bit of a worry.” Sterling fell 0.4 percent to 92.32 pence per euro as of 10:04 a.m. in London. Against the dollar, it rose as much as 0.1 percent to $1.5955, after climbing as much as 0.7 percent. The pound gained earlier after a separate report showed U.K. house prices rose for a third month in September. Home values climbed 1.6 percent, after increasing 0.8 percent in August, Halifax, a division of Lloyds Banking Group Plc, said. Government bonds fell, with the yield on the two-year gilt rising 4 basis points to 0.77 percent. The 4.25 percent security due March 2011 slipped 0.07, or 70 pence per 1,000-pound face amount, to 104.90.

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