By Matthew Brown Jan. 28 (Bloomberg) -- The pound advanced and gilts fell as stock markets rallied around the world after the Federal Reserve said for the first time that the U.S. economy is in recovery, spurring demand for riskier assets. The British currency appreciated to the strongest level against the euro since Aug. 20 as the MSCI World Index of shares snapped a six-day decline, its longest losing streak in almost a year. The Federal Open Market Committee yesterday upgraded its economic outlook, and reaffirmed it will end liquidity backstops and a $1.25 trillion program to buy mortgage-backed securities. “Broader global market developments are supportive of the pound today,” said Derek Halpenny, European head of foreign- exchange strategy at Bank of Tokyo Mitsubishi UFJ Ltd. in London. “Investors conclude that better global conditions mean more profitable financial institutions.” The pound strengthened 0.6 percent to 86.26 pence per euro as of 12:22 p.m. in London. The British currency rose 0.5 percent against the dollar to $1.6246, and added 0.8 percent to 146.63 yen. U.K. government bonds were also driven lower after the Financial Times cited Robert Stheeman, who runs the nation’s Debt Management Office, as saying that it will be more difficult to sell gilts without the Bank of England buying the securities. The bank completed its 200 billion-pound ($325 billion) asset- purchase program on Jan. 26 and will decide whether to continue so-called quantitative easing at its next meeting on Feb. 4. The yield on the 10-year gilt rose 6 basis points to 3.94 percent. The 4.5 percent security maturing in March 2019 fell 0.47, or 4.7 pounds per 1,000-pound face amount, to 104.26. Two- year gilt yields rose 7 basis points, to 1.27 percent. Darling Deficit Plan Gilts have returned investors 1 percent this year, compared with 1.3 percent for German government bonds and U.S. Treasuries. Chancellor of the Exchequer Alistair Darling rejected criticism about Britain’s debt today, citing his plan to halve the deficit in four years. “We have the fastest deficit reduction plan of major economies,” Darling said in an interview with Bloomberg Television. The U.K. government bond market will be “O.K.” this year, according to Ian Williams, chief executive officer of gilt fund Charteris Portfolio Managers, countering comments from Pacific Investment Management Co.’s Bill Gross, who said yesterday that the securities are “sitting on a bed of nitroglycerine.” “The U.K. will have very anemic growth of less than 1 percent for the next three or four years,” Williams said in a Bloomberg Television interview. “We place a 40 percent probability on the U.K. falling back into recession and further cuts in interest rates.” To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net

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