U.K. government bonds fell, headed for their second week of losses, and the pound rose as economic reports signaled the economic recovery is gathering pace. Gilt losses pushed the 10-year yield to within six basis points of its highest level in almost six months as demand for the safest assets eased. Sterling climbed to its strongest level since Nov. 23 against the dollar as data showed U.K. house prices rose to the highest in more than two years in November. The FTSE 100 Index has gained 1.2 percent this week. Gilts fell with U.S. Treasuries after President Barack Obama agreed to extend U.S. tax cuts for two years on Dec. 6. “We’ve seen a bit more calm in the markets and that’s reduced demand in the safer countries,” said Elisabeth Afseth, an analyst at Evolution Securities Ltd. in London. “Gilts have been dragged along with that. The economic data has been generally decent,” reducing demand for bonds, she said. The 10-year yield rose three basis points to 3.51 percent as of 10:23 a.m. in London, after climbing yesterday to 3.58 percent, the most since June 15. The 4.75 percent security due March 2020 fell 0.22, or 2.20 pounds per 1,000-pound ($1,582) face amount, to 109.74. The two-year note yield was at 1.09 percent, from 1.06 percent yesterday. The average price of a home in England and Wales climbed for a seventh month, gaining 0.2 percent, research company Acadametrics Ltd. and LSL Property Services Plc said in an estimate released today. U.K. producer prices increased for a second month in November as higher food and gasoline costs kept up inflation pressures in the economy. Pound Gains The pound gained 0.2 percent to 83.75 pence per euro, leaving it 1.5 percent stronger this week. It was up 0.3 percent at $1.5807, after climbing to $1.5862. Sterling has gained 0.2 percent in the past month, according to Bloomberg Correlation-Weighted Currency Indexes, which track a basket of 10 developed-country currencies. Since the end of 2009, Britain’s currency has lost 3.7 percent, compared with a 9.5 percent decline by the euro. The pound outperformed the 16-nation euro as the region’s debt crisis boosted demand for U.K. assets as a haven. The Bank of England yesterday kept its benchmark interest rate steady and held its asset-purchase program unchanged. “There’s more gloom elsewhere,” said Chris Furness, head of foreign exchange strategy at 4Cast Ltd. in London. Sterling will probably advance to 81 pence per euro by June, he said. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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