Sterling Hit By Northern Rock Crisis

The sterling fell sharply after the Bank of England provide an unspecified amount of financial support to UK¡¯s fourth largest home mortgage lender, Northern Rock, which suffered losses from recent rising lending rates sparked by US subprime crunch. This unusual move reignited worries that credit market problems may hit global economy. The sterling dropped to a 10-day low at 2.0062 versus the dollar.The dollar was almost flat against the euro and yen on Friday though a soft US retail sales report reinforced speculations on a 50 basis point Fed rate cut next week. US retail sales rose 0.3% in August, below the estimate of 0.4%. Excluding autos, core retail sales dropped 0.4%, worse than the expectation of a 0.2% growth. US import prices declined 0.3% due to lower oil prices in August, while export prices rose 0.2% as expected. Current account deficit came out at 190.79 billion as expected in the second quarter. Industrial production rose 0.2% in August, below the estimate of 0.3%. University of Michigan consumer sentiment index was almost unchanged from previous month at 83.8. Business inventories were up 0.5% in July, beating the estimate of 0.3% and 0.4% a month earlier.Earlier in US session today, US Treasury Secretary Henry Paulson said in CNBC interview today that credit markets have had some modest improvement. He reiterated that a stronger dollar is in US interest, giving the dollar a knee-jerk boost.