Pound set for biggest monthly fall vs dollar since 1992

By Nick Vinocur

LONDON (Reuters) - Sterling fell against the dollar on Friday, setting it on track for its biggest monthly percentage loss since October 1992, wounded by renewed risk aversion as European share markets fell.

The U.S. currency was one of the chief beneficiaries of the flight from riskier investments, also firming on month-end demand for cash from global fund managers.

The FTSE-100 index of leading shares snapped a three-day winning streak, amid deepening fears that a round of global rate cuts would not be enough bolster corporate earnings and prop up weak consumer confidence in major economies.

Sterling has dropped by roughly 10 percent in October and putting the currency on track to clock its worst monthly performance since October 1992, just after the pound crashed out of the European Exchange Rate Mechanism.

Analysts said low-yielding currencies such as the dollar and yen would continue to benefit from capital repatriation in coming weeks as hedge fund managers unwind carry trades that had built up over several years.

Carry trades involve borrowing low-yielding currencies to fund purchases of higher-return assets.

"Our view is that you've got a fear in the world about where to put your capital, and most of it is going to two places: dollar and yen," said Neil Mellor, currency strategist at the Bank of New York Mellon in London.

By 2:40 p.m., the pound was down 1.7 percent versus the dollar at $1.6139. The euro was up 0.3 percent at 78.82 pence. Against the yen, sterling fell 1.7 percent to 159.49 yen.