Pound falls as Lehman results trim risk appetite

LONDON (Reuters) - The pound fell against the dollar and the euro on Wednesday as weak results from troubled U.S. bank Lehman Brothers caused investors to pare back their exposure to risk.

Lehman LEH.N revealed a larger-than-expected third quarter loss of $5.92 per share and slashed its annual dividend, highlighting is deep financial problems. It said it would sell a majority stake in one of its units, but failed to outline concrete actions to improve its balance sheet.

The announcement increased risk aversion, boosting the low-risk yen close to its highest level against sterling in nearly four years hit earlier in the month and keeping the pound under broad selling pressure.

The currency was already under pressure due to ongoing concerns that the UK economy is heading for a recession.

"The Lehman results were disappointing and we are seeing sterling fall. It is a high-yielder, a risky currency and the UK economy is weak," said Geoffrey Yu, currency analyst at UBS.

At 3:14 p.m., the pound was down 0.2 percent against the dollar at $1.7570, as the dollar rose across the board, recovering from an initial slide after the Lehman figures were announced. The euro was up slightly at 80.24 pence.

Yu said that trade has been extremely volatile as markets continue to digest the implications of the Lehman news, while adding that ongoing concerns over the bleak economic outlook in the UK are keeping the pound under pressure.

Against a currency basket of Britain's major trading partners, sterling's trade weighted index slipped to 88.7, inching closer to a 12-year low of 87.9 hit earlier this month.

Forecasts from a leading think tank on Wednesday highlighted recession risks facing the UK. The National Institute of Economic and Social Research said the economy contracted by 0.2 percent in the three months to August after a 0.1 percent fall in GDP in the three months to July.