Oct. 6 (Bloomberg) -- The pound posted a weekly gain against the euro as evidence of rising house prices and consumer confidence reinforced expectations the Bank of England will increase interest rates next month.

Bank of England policy makers kept their benchmark rate at 4.75 percent yesterday as predicted by all 43 economists in a Bloomberg News survey. Signs of accelerating inflation in the U.K. helped spur British rate predictions last quarter, sending the pound to a 15-month high. A government report today showed manufacturing rose for a fourth month in August.

``Sterling has performed well and if you like the interest rate story it has been a good one,'' said Simon Derrick, chief currency strategist at Bank of New York in London. ``The housing market has been a consistent and positive surprise.''

Against the euro, the pound was at 67.29 pence at 4:20 p.m. in London from 67.56 late yesterday and 67.78 pence on Sept. 29. The U.K. currency was also at $1.8704, from $1.8718 a week ago.

The pound fell against the dollar today after a U.S. government report showed the economy created fewer jobs than forecast in September. The 51,000 gain in employment followed a 188,000 rise in August that was almost 50 percent bigger than previously reported, the Labor Department said today in Washington.

The U.K. currency was also buoyed by a government report that showed U.K. manufacturing grew for a fourth month in August, spurred by exports to the euro area, a sign growth in Europe's second-biggest economy is holding steady.

Factory production rose 0.4 percent, after gaining a revised 0.1 percent in July, the Office for National Statistics said today in London. The result exceeded the 0.2 percent median estimate in a Bloomberg survey of 30 economists. Production rose an annual 1.5 percent.

Housing Market

Britain's currency has appreciated as central banks lifted purchases of the pound for their foreign-exchange reserves, international takeovers of U.K. companies increased and the Bank of England surprised most economists by raising rates in August.

``Sterling has benefited from the idea it is growing in popularity as a reserve currency,'' said Derrick.

The pound touched an 11-week high against the dollar after the U.K. central bank unexpectedly rates on Aug. 3, the first increase in two years.

U.K. house prices rose for a third month in September, HBOS Plc said Oct. 4. Prices rose 1 percent from August to an average of 181,186 pounds. The Nationwide Building Society said its consumer sentiment index rose 6 points to 89.

Accelerating inflation in the U.K. means economists forecast the central bank will increase borrowing costs later this year. The median prediction of 37 analysts in a Bloomberg survey last month was for the bank to lift its main rate to 5 percent in November, the same month the Bank of England releases its quarterly outlook for growth and inflation.

`Significant Net Inflows'

``Prospects for sterling appreciation remain, suggesting that recent weakness likely represents attractive entry levels,'' wrote Citigroup Inc. analysts Steven Saywell and Jeffrey Young in a note to clients published yesterday. ``The U.K. is attracting significant net inflows from mergers and acquisitions, foreign demand for gilts and central bank reserve diversification.''

Citigroup forecasts the pound at 66 pence per euro in the coming months and the U.K.'s benchmark interest rate at 5 percent by year-end.

The central bank predicts the inflation rate, which reached 2.5 percent in August, will exceed its 2 percent target over the next two years.

Investors expect the Bank of England to raise the key interest rate to 5 percent this year, futures trading shows. The yield on the futures contract maturing in December was at 5.25 percent today.

The contract settles to the three-month London inter-bank offered rate for the pound, which has averaged about 15 basis points more than the central bank's target for the past decade.

-- Editor: Cunningham (tmf)

To contact the reporter on this story: Tim Farrand in Edinburgh at tfarrand@bloomberg.net

Last Updated: October 6, 2006 11:20 EDT