Pound hits 8-month high vs dollar

The pound rallied on Tuesday, hitting an eight-month high against the dollar after a surprising rise in monthly house prices offered signs that the deterioration in the housing market may have slowed.

Against a basket of currencies, the pound rose to its highest since November after the Nationwide building society said that house prices rose 0.9 percent in June, wrongfooting forecasts for a fall, to take the annual rate of decline to 9.3 percent, the smallest fall since July 2008.

Analysts were surprised by the figures and cautioned that the monthly rise in prices may be a reflection of an ongoing shortage of supply, but added that the second month of price gains was positive for the broad economy, the banking sector and therefore sterling.

"It is an encouraging piece of news not only in what it reflect that there might be some housing market activity but because (weak house prices) have been one of the key stresses on the banking system," said David Page, economist at Investec in London.

"The removal of that constraint, as well as being good in its own right for the housing market, is positive for the banking system and cable, as the two are heavily linked."

For more clues into the health of the economy, markets await a final estimate of first quarter growth at 9:30 a.m. The economy is expected to have contracted 2.1 percent on the quarter, and 4.3 percent on the year.

The pound climbed as high as $1.6745, its strongest since mid-October 2008, after the data was released in early London trade. By 8:53 a.m., it had trimmed some of those gains to trade at $1.6675, up 0.8 percent on the day.

Sterling's gains against a broadly weaker dollar helped to push the pound's trade-weighted index to 84.7, its highest since November, according to Bank of England data which track the pound's movements against a basket of currencies.

The euro fell 0.6 percent to 84.48 pence, near the day's low around 84.35 pence and inching closer to a near-seven-month low of 83.97 pence hit earlier in the month according to Reuters data.

Sterling has posted hefty gains during the second quarter, which ends on Tuesday, due to escalating speculation that the deterioration in the UK economy seen from a year ago may have hit a bottom, and is showing some signs of improvement.

Against the dollar, the pound is on track to posting a 16.4 percent quarterly rise, which would its biggest since at least 1982 and its first quarterly rise in a year.

In January-March, the pair fell roughly 2 percent, while it plummeted 18 percent in October-December and 10.5 percent in July-September.

Energy rally fuels FTSE's early 1.4 pct gain

* Commodity prices lift miners, energy stocks

* Broad based rally as Q3 gets underway

* Marks & Spencer up on trading news

Robust commodity prices boosted energy and mining stocks which led a broad-based rally at the start of the third quarter, lifting Britain's top share index 1.4 percent higher early on Wednesday.

Crude rose nearly 2 percent to above $71 per barrel CLc1 fuelling a rise in heavyweight energy stocks, which added most points to the index.

BP (BP.L), Royal Dutch Shell (RDSa.L), BG Group (BG.L), Tullow Oil (TLW.L) and Cairn Energy (CNE.L) added between 1.3 and 2.3 percent.

By 0755 GMT the FTSE 100 .FTSE was up 60.11 points at 4,309.32, after closing 44.82 points, or 1 percent, lower on Tuesday at 4,249.21.

The index ended up 8.2 percent on the quarter, the best such performance since the final quarter of 2003, and has gained 22.8 percent since touching a six-year low on March 9.

The index's level is little moved since the start of May, however, and investors are awaiting more concrete evidence on the prospects for economic recovery before pushing the market substantially higher.

"We've been in a range for the last six weeks and I don't expect huge moves, people are looking at the famous shape of recovery, whether it will be "V" "W" or "L" shaped," said Teun Draaisma, equity strategist at Morgan Stanley.

Like energy stocks, miners also benefited from firmer raw materials, with metal prices stronger across the board.

Rio Tinto (RIO.L), Kazakhmys (KAZ.L), Eurasian Natural Resources (ENRC.L), Anglo American (AAL.L), Lonmin (LMI.L) and BHP Billiton (BLT.L) added between 2.1 and 4 percent.

RETAILERS RELIEF RALLY

Marks & Spencer (MKS.L) added 3.7 percent as analysts nudged up their full-year profit forecasts for the iconic high street retailer after it posted a smaller than expected decline in first-quarter underlying sales.

Peer Next (NXT.L) also gained, up 3.3 percent.

Banks were broadly higher, as the risk sensitive stocks responded well to increased investor confidence.

Barclays (BARC.L), HSBC (HSBA.L), Standard Chartered (STAN.L), Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L) added 0.5-2.3 percent.

Investors will look to the UK June manufacturing sector PMI report, due at 0828 GMT, to provide further clues as to the health of the domestic economy.

U.S. June ISM data will be a focus later in the session, together with May U.S. pending home sales numbers, and the June ADP National Employment report, a precursor to Thursday's crucial U.S. jobs report.

Man Group (EMG.L) was the biggest faller among just a handful of stocks in the red, down 4.8 percent after going ex-dividend. Alliance Trust (ATST.L), and Compass Group (CPG.L) also lost their payout attractions denting their performance.