Downcast pound knocked by HBOS and housing data

LONDON (Reuters) - The pound slid versus the dollar and euro on Monday as more bad news on the financial sector and housing market deepened Britain's economic gloom.

HBOS HBOS.L said shareholders subscribed for just 8.3 percent of shares in its rights issue, leaving its underwriters to try to sell almost 3.8 billion pounds of stock.

Property website Rightmove showed another pillar of the economy, housing, is also floundering.

Rightmove said prices for homes in England and Wales fell 2 percent year-on-year in July, the first annual fall since the series began six years ago.

"There's more concern on the banking side from HBOS' rights issue being undersubscribed and (the housing data) underlines the overall weakness in the economy ... which is keeping the pound on the defensive," said Daragh Maher, senior currency strategist at Calyon.

By 8:26 a.m., the pound was down 0.3 percent at $1.9924. The euro was up 0.4 percent at 79.62 pence.

Bank of England Monetary Policy Committee member David Blanchflower told the Guardian newspaper the British economy was heading into recession and interest rates should fall to "well below" their current 5 percent.

Investors will look to the minutes of July's MPC meeting on Wednesday to gauge whether any other members are moving towards easing monetary policy soon, which would further weigh on sterling.

"(Blanchflower) has voted for a cut in the past and unless the minutes show that others are sympathetic (to rate cuts) his views will be dismissed by the market," Maher at Calyon said.