Sterling rose broadly on Monday, hitting its highest in seven weeks against the Japanese yen, led by rallying stock markets after reports the US government may boost its stake in embattled lender Citigroup. The pound also rose sharply against a weakened euro after European Central Bank chief Jean-Claude Trichet highlighted severe pressure on the currency zone's financial system.
Strong demand versus the euro and yen helped the pound double its gains on the greenback during London trade. Investor risk appetite rose tentatively on reports that the US government was in talks with Citigroup to convert a large chunk of its preferred shares into common stock - raising its stake to as much as 40 percent but avoiding full nationalisation.
Royal Bank of Scotland stocks jumped over 15 percent on expectations for it to split in two, with a core bank containing UK retail and other retail and commercial operations, and a separate unit holding non-core assets. "The fact that RBS might be splitting up into a good bank and bad bank is generally viewed as a good thing by markets," said Paul Robinson, chief sterling strategist at Barclays Capital.
At 1500 GMT, sterling was up 0.8 percent on the day at $1.4554, and hit 139.11 yen, a seven week high, Reuters data showed. The euro fell 1.2 percent to 87.81 pence. The single currency lost broad ground after Trichet told an audience in Paris that the euro zone financial system, like others, was under "severe strain" and that the spillover was reaching the real economy.
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