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Sterling falls, gilts gain after weak UK services PMI

LONDON, June 4 (Reuters) - Sterling fell and UK gilts and interest rate futures extended gains on Wednesday after figures showed the UK service sector posted its first shrinkage in five years, emphasising weakness in the economy.

The Chartered Institute for Purchasing and Supply/NTC purchasing mangers’ index fell to 49.8 from 50.4 in April, marking the first contraction since March 2003. Expectations had been for the figure to stabilise at 50.4 [nL03618042].

“The UK economy is in a pretty tight spot, the data keeps on getting weaker but the Bank of England can’t do anything about it,” said Geoff Kendrick, currency strategist at Westpac.

“Data’s going to be bad for the next 12-18 months and the bank is on the sidelines, which is an all-bad scenario for the currency.”

Sterling fell near the day's low to around $1.9540 GBP= from $1.9575 shortly before the announcement.

The UK currency also stumbled against the euro, which jumped to a session high of 79.18 pence EURGBP=.

The June long gilt future FLGM8 extended gains to stand 57 ticks higher on the day, having been 53 ticks higher beforehand.

Short sterling interest rate futures <0#FSS:> extended gains to stand as much 11 ticks higher across the strip, having been no more than eight ticks higher beforehand.

Reporting by London Markets Team

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