By Beth Mellor Dec. 2 (Bloomberg) -- The pound rose to the highest level in almost a week against the dollar after a report showed the pace of contraction in the U.K. construction industry slowed and investor concern eased that Dubai World may default. Sterling also climbed for a second day against the euro. An index of construction advanced more than economists forecast in November, the Chartered Institute of Purchasing and Supply and Markit Economics said today. Bank of England Chief Economist Spencer Dale said the U.K. economy has begun to “stabilize.” Dubai World said yesterday that it began negotiations to reschedule payments on about $26 billion in debt. “Risk appetite looks as if it’s on the rebound and that is providing a floor for sterling,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International. Concern that Dubai World may default has “eased somewhat,” and “central banks globally are still pumping significant levels of liquidity into the market,” he said. “That is playing back into risk sentiment.” The U.K. currency rose as high as $1.6694, the strongest level since Nov. 26, before trading at $1.66856 as of 12:20 p.m. in London, from $1.6610 yesterday. It appreciated to 90.39 pence per euro, from 90.80 pence. The pound, already vulnerable as the U.K. lags behind the U.S. and euro region in recovering from recession, has declined amid speculation the plan by Dubai World to delay debt repayments may hurt British banks. Sterling posted its biggest drop in a month against the dollar on Nov. 26, the day after Dubai said the state-controlled company was seeking a “standstill” agreement on the loans. Solid U.A.E The pound slipped 0.1 percent against the dollar in November and dropped 1.9 percent against the common European currency. United Arab Emirates Minister of Economy Sultan bin Saeed al-Mansouri said today the country’s economy is solid and “able to face crisis and challenges no matter how tough they are.” The pace of contraction in the U.K construction industry slowed for the first time since August. The index rose to 47 in November from 46.2 the previous month, compared with the median prediction of 46.9 in a Bloomberg survey of 10 economists. Readings below 50 indicate contraction. There is evidence that “the economy has begun to stabilize and that we are likely to be moving into a period of renewed expansion,” Dale said in a speech in Billericay, England, today. “The easing in monetary and fiscal policy is providing considerable support to the emerging recovery.” Dale was the only policy maker to oppose the central bank’s decision to increase its emergency bond purchase program on Nov. 5. Gains Limited Gains by the pound may be limited due to the likely “underperformance” of the U.K. economy, Commerzbank AG said. A reading below 50 on the construction index “should reinforce the view of further underperformance of the U.K. economy in the near term,” analysts led by Ulrich Leuchtmann in Frankfurt wrote in a note to clients before the release of the construction data. “In the absence of fundamental support we think that the latest pound strength should prove only temporary.” U.K. government bonds dropped, pushing the yield on the 10- year gilt up 5 basis points to 3.59 percent. The yield on the two-year note advanced 1 basis point to 1.15 percent. To contact the reporters on this story: Beth Mellor in London at bmellor@bloomberg.net

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