During early European deals on Tuesday, the British pound extended its Asian session downtrend against the US dollar and the Japanese yen and hit new multi-day lows after a report showed that U.K. industrial, manufacturing output declined in February.

British industrial production suffered its biggest annual fall in over 40 years in February, as the global economic slump weakened demand for factory goods. This was the 12th consecutive monthly fall for the Manufacturing or factory output and its worst annual decline since January 1981.

UK industrial production declined 1% month-on-month in February, the Office for National Statistics or ONS said today. Economists had expected output to fall 1.2% in February, following a 2.7% decrease in January.

Year-on-year, production was down 12.5% in February, in line with economists' expectations.

Meanwhile, manufacturing production in February dropped 0.9% from the previous month, taking the annual decline to 13.8%. Economists were looking for a monthly fall of 1.5% and an annual 14.2% drop in February.

On the other hand, the pound reversed its Asian session's 4-day low against the European currency and a 5-day low versus the Swiss franc.

The UK recession is still very serious and is likely to continue for sometime, a quarterly Economic Survey from the British Chambers of Commerce showed today. The business lobby said there is a clear need for corrective action.

According to the survey, the manufacturing sector's balances deteriorated again in the first quarter and reached record lows in almost all critical areas. The balances for the service sector showed improvement in most key areas, though they still remain in negative territory.

Against the US dollar, the British pound edged down during early deals on Tuesday. At 5:50 am ET, the pound-dollar pair declined to a 5-day low of 1.4602, compared to 1.4772 hit late New York Monday. If the pair falls further, 1.437 is seen as the next target level.

The British pound that closed Monday's North American session at 0.9086 against the European currency slipped to a 4-day low of 0.9117 at 2:25 am ET Tuesday. Thereafter, the British currency reversed its direction and is currently quoted at 0.9090 versus the euro with 0.898 seen as the next target level.

Economic contraction in the euro area in the fourth quarter was more than initially estimated, official data revealed today.

Final data from the Eurostat showed that gross domestic product, or GDP, contracted 1.6% quarter-on-quarter in the final three months of 2008. The pace of decline was slightly up from the previously estimated fall of 1.5%. GDP fell 0.3% each in the third and second quarters.

Against the Swiss franc, the British currency gained ground after hitting a 5-day low of 1.6660 during Tuesday's early Asian deals. At 5:15 m ET, the pound-franc pair reached a high of 1.6782, compared to Monday's closing value of 1.6787. The next upside target level for the British pound is seen around 1.704.

Extending Asian session's downtrend, the British pound touched a 4-day low of 146.52 against the Japanese yen during early European deals on Tuesday. On the downside, 140.6 is seen as the next target level for the UK currency. The pound-yen pair closed Monday's New York deals at 149.21.

Today, the Bank of Japan retained its key interest rate, but it decided to expand the range of eligible collateral in order to make funds easily available.

The Policy Board of the central bank unanimously voted to hold the uncollateralized overnight call rate at 0.1%. The decision came in line with economists' expectations. The previous change in interest rates was a 20 basis point cut implemented in December 2008.

The central bank said it will accept loans on deeds to municipal governments as eligible collateral and also broadened the range of eligible collateral for loans on deeds to the government and those with government guarantees.

Traders now turn toward the New York session, in which the U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 pm ET. Consumer credit for February is likely to show a decline of $1.5 billion.

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