By Anchalee Worrachate Jan. 18 (Bloomberg) -- The pound strengthened below 88 pence per euro for the first time since Sept. 15 as a survey showed U.K. house prices increased in January, adding to speculation the economic recovery is gaining momentum. The British currency advanced most against the yen and climbed for the sixth time in seven days versus the dollar. Average asking prices for homes in England and Wales jumped 0.4 percent from the previous month, Rightmove Plc, the U.K.’s biggest property Web site, said today in a statement. UBS AG, the world’s second-largest currency trader, said today investors should sell the euro versus the pound. “Data such as house prices and consumer sentiment are showing some signs of improvement,” said Mitul Kotecha, global head of currency strategy in Hong Kong at Calyon, the investment-banking unit of Credit Agricole SA. “The pound is among our favorite currencies this year. A lot of negative news has already been in the price.” Sterling traded at 88.03 pence at 11:44 a.m. in London from 88.45 pence last week and earlier reached 87.83. Sterling rose to 148 yen, from 147.63, and to $1.6351, from $1.6264. Britain’s economy is showing signs of recovery from its longest recession on record after the Bank of England cut its key interest rate to an all-time low of 0.5 percent and embarked on a 200 billion-pound program of asset purchases. The pound will appreciate to $1.66 by the end of June, according to the median of 29 analysts’ forecasts compiled by Bloomberg. Sell the Euro Investors should sell the euro versus the pound as concern about Greece’s budget deficit damps demand for the 16-nation currency and evidence of the U.K. recovery grows, UBS said. European Central Bank President Jean-Claude Trichet said last week the region’s record low interest rates remain appropriate and that Greece won’t receive any special treatment. “Trichet was dovish last week and Greece is likely to keep weighing on the euro,” Mansoor Mohi-uddin, head of currency strategy in Singapore at UBS, Switzerland’s biggest bank by assets, wrote in a note to clients. The bank expects “bearish sentiment on sterling to abate as the U.K. economy recovers.” The pound also rose on speculation Kraft Foods Inc., facing a deadline to make a revised bid for Cadbury Plc tomorrow, will increase the size of its offer, indicating the appeal of U.K. assets is growing, according to Calyon’s Kotecha. Kraft may raised its bid for Cadbury to at least 820 pence per share from 771 pence, the Sunday Times reported yesterday without saying where it got the information. Gilt Spread U.K. gilts rose, with 10-year yields falling to the lowest level in nearly a week, as concern over Greece’s public finances spurred demand for safest fixed-income assets. “There’s a flight to quality as concern mounted over the fiscal outlook of countries like Greece and Portugal,” said Wilson Chin, a fixed-income strategist at ING Bank NV in Amsterdam. The yield on the 10-year note fell two basis points to 3.92 percent. The 4.5 percent security due in March 2019 rose 0.12, or 1.2 pounds per 1,000-pound face amount, to 104.42. The two- year note yield held at 1.2 percent. The yield difference, or spread, between two- and 10-year notes narrowed to 2.71 percentage points, the least since Jan. 5, on speculation an economic recovery will allow the Bank of England to raise interest rates later this year. The central bank, led by Governor Mervyn King, will raise its key rate to 1 percent by the end of this year from the record low of 50 basis points now, according to the median of 37 analysts’ forecasts compiled by Bloomberg. Gilts underperformed U.S. and euro zone bonds this year, returning 0.6 percent compared with 1.04 percent from Treasuries and 0.8 percent from German debt. To contact the reporter on this story: Anchalee Worrachate in London at Aworrachate@bloomberg.net

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