Here >>> Sterling falls on UK banking shake-up; BoE eyed
* Stg down 0.5 pct vs dlr on banking concerns, ahead of BoE
* UK govt announces bank shake-up, takes more RBS B shares
* Lloyds launches record rights issue
* BoE seen raising QE this wk
LONDON, Nov 3 (Reuters) - Sterling fell broadly on Tuesday after the UK Treasury announced a major shake-up of British banks and as investors braced for a possible further extension of quantitative easing by the Bank of England this week.
Under the bank restructuring plans, Royal Bank of Scotland and Lloyds Banking Group will between them have to sell off businesses equating to 10 percent of the retail banking market.
The government will raise its economic interest in Royal Bank of Scotland while keeeping its ordinary share stake steady and Lloyds launched a record 13.5 billion pound rights issue. [ID:nL3540088]
The shake-up highlights the fragility of the financial sector, which is a key part of the UK economy, and will add to concerns about the country's public finances.
The FTSE 100 index of major UK shares <.FTSE> was down 1.3 percent, with falls in banking stocks weighing on the index as RBS shares fell 3 percent.
"Sterling is reacting to all these headlines coming out and concerns about the implications for the financial sector," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.
"People are also cautious ahead of the BoE meeting, which is weighing on sterling too," she added.
At 0840 GMT, sterling was down 0.5 percent to $1.6315 while the euro rose by 0.4 percent against the pound to 90.42 pence.
The falls pushed sterling's trade-weighted index <=GBP> down to 80.0, its lowest in nearly a week.
The BoE is set to announce its decision on Thursday and most analysts expect it will increase its 175 billion pound asset-purchasing plan by 25 billion pounds to stimulate further the struggling UK economy. [BOE/INT]. Some in the market see a rise of as much as 50 billion pounds.
An increase in the BoE's quantitative easing programme has looked more likely since data on Oct. 23 showed an unexpected contraction in UK gross domestic product.
The announcement of the UK banking shake-up added to the negative sentiment towards the currency, underscoring the potential problems ahead for the economy and its troubled financial sector.
"We struggle to see how this can be anything but bad news for sterling and it reinforces our overall bearish view on the currency," said Ned Rumpeltin, currency strategist at Nomura in a note to clients.
"First, the recapitalisation underscores the still-weak position of the UK's financial system and the likelihood that the sector is likely to remain a drag on growth for the foreseeable future. Second, the involvement of additional public funds keeps the UK's precarious fiscal position at centre stage," he said.
(Reporting by Jessica Mortimer, editing by Nigel Stephenson)
((jessica.mortimer@thomsonreuters.com; Tel: +44207 542 7817, Reuters Messaging: jessica.mortimer.reuters.com@reuters.net)
Keywords: MARKETS STERLING/OPEN |
