The pound strengthened against the dollar, snapping a two-day decline, as optimism that euro-area leaders are acting to ease the region's debt crisis spurred demand for riskier assets such as stocks.
The pound also rose versus the yen and gilts fell as an index of UK services unexpectedly gained in November. Italian Prime Minister Mario Monti proposed ¤30 billion (Dh146.8 billion) of new austerity measures on Sunday, while German Chancellor Angela Merkel and French President Nicolas Sarkozy meet yesterday before a European Union summit on Friday. The European Central Bank will cut interest rates this week, according to the median forecast in a survey of economists by Bloomberg.
"Markets in general are cautiously optimistic going into the EU summit and ECB meeting, hoping really that the European authorities will move towards putting in place a more effective policy response," said Lee Hardman, a strategist at Bank of Tokyo-Mitsubishi UFJ in London.
"Those expectations are weighing on the safe-haven currencies like the dollar and the yen. Part of that as well is the services PMI came in slightly better than expectations."