By Paul Dobson March 1 (Bloomberg) -- The pound slid below $1.50 for the first time in almost 10 months as polls showed Britain may have its first minority government since 1974, hampering efforts to reduce the nation’s debt. The yen weakened as stocks rose. Sterling slumped against all 16 of its most-traded peers, weakening against the euro to more than 91 pence for the first time since Dec. 4, amid speculation the European Union is nearing an agreement to help Greece manage its budget deficit. The yen dropped versus higher-yielding currencies including Australia’s dollar as Europe’s Dow Jones Stoxx 600 Index rose as much as 1.2 percent, before paring gains. “We have a truly negative sterling story starting to build,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “A hung parliament is now very much the probability. The likelihood that we’re going to move to a rapid lessening of the deficit is being taken away.” The pound dropped as much as 3 percent to $1.4784, the lowest level since May 1, trading at $1.4907 as of 8:06 a.m. in New York. It depreciated 1.5 percent to 90.78 pence per euro and fell 1.8 percent to 133.13 yen. The Japanese currency weakened to 79.91 per Australian dollar, from 79.65 at the end of last week, and depreciated to 89.30 against the dollar, from 88.97. The euro declined 0.7 percent to $1.3536 and fell 0.3 percent to 120.88 yen, after rising as high as 121.90. Japan’s currency also slipped after Financial Services Minister Shizuka Kamei said the nation’s central bank should contemplate directly purchasing government debt. Yen Weakens The Japanese government has increased calls on the Bank of Japan to prop up growth since the administration declared the economy was in deflation on Nov. 20. Consumer prices excluding fresh food fell 1.3 percent in January from a year earlier, an 11th month of declines, the statistics bureau said last week. The Stoxx 600 increased 0.1 percent as rising stocks outnumbered falling shares by about three to one. Sterling had its biggest drop against the dollar since Feb. 2, 2009, as a poll showed the opposition Conservative Party has the smallest lead over the Labour Party in more than two years. Elections must be held by June. “The political development added to the negative sentiment about the pound,” said Audrey Childe-Freeman, a senior currency strategist at Brown Brothers Harriman Ltd. in London. “You will need a government with a strong majority to push ahead with reforms that the U.K. needs.” Sterling Slides Sterling tumbled by 8.5 percent against the dollar and 2.4 percent versus the euro this year as investor concern over fiscal austerity is heightened by the problems surrounding Greece’s budget deficit. The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain -- so-called net shorts -- was 62,884 on Feb. 23, compared with net shorts of 56,079 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed. Turcan Connell, an Edinburgh-based money manager that caters to rich families, expects the pound to decline between 20 percent and 30 percent against the dollar because of its budget deficit. Concern that Greece will struggle to cut its budget shortfall helped send the euro 5.5 percent lower against the U.S. currency this year. Greek Bonds European Union Monetary Affairs Commissioner Olli Rehn said today that Greece must deepen measures to reduce its budget deficit after meeting with Greek Finance Minister George Papaconstantinou. The EU will continue to support Greece as it tackles its deficit, Rehn said. Four German lawmakers said the nation is considering buying Greek bonds through state-owned lender KfW Group, part of a European plan to grant Greece as much as 25 billion euros ($34 billion) in aid should the need arise. They spoke on the condition of anonymity because the information is confidential. The biggest traders are predicting Sweden’s krona, last quarter’s worst-performing major European currency, will appreciate at least 10 percent this year as the economy grows almost twice as fast as Europe’s and the Riksbank raises interest rates four times more than the European Central Bank. The krona is leading the region as Sweden’s shrinking deficit lures investors fleeing the growing debt crisis in nations that share the euro. Sweden’s currency strengthened more than all the other 156 tracked by Bloomberg except Brazil’s real with February’s 5.5 percent gain against the euro, the krona’s best month since January 1999. Economic Data The krona traded down 0.7 percent to 9.7766 per euro as a government report showed Sweden’s economy unexpectedly shrank in the fourth quarter. Gross domestic product contracted 0.6 percent as demand for exports declined and fell a revised 0.1 percent in the third quarter. The median estimate of 13 economists in a Bloomberg survey was for 0.3 percent growth from October through December. The U.S. Institute for Supply Management’s factory index fell to 58.0 last month from 58.4 in January, according to a Bloomberg News survey of economists before the data’s release today. Payrolls dropped by 50,000 in February after declining by 20,000 in January, according a separate survey before the Labor Department’s March 5 report. “A pessimistic view about the U.S. economy is likely to dominate the market due to the influx of data this week, including ISM and non-farm payroll data,” said Makoto Noji, a senior market analyst in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “This will keep a lid on the dollar.” To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net

Source