London, Jan. 17 (Bloomberg) -- The British pound rose to its highest in three years against the dollar amid signs a war against Iraq is drawing closer. The U.K. currency gained to $1.6172 at 12:20 p.m. in London from $1.6130 late yesterday. It earlier gained to $1.6184, its highest since February 2000. The U.K. currency was at 65.87 pence per euro from 65.78, after falling to 66.14 Tuesday, its weakest since September 1999. Leaders of the UN inspections in Iraq will ask the Security Council for more time to assess whether the country has weapons of mass destruction. Concern about a possible conflict was heightened after inspectors yesterday found 11 warheads southwest of Baghdad, the UN said.
Investors' ``sensitivity about a war has increased since this latest discovery,'' and that's hurting the dollar, said Ian Stannard, a currency strategist at BNP Paribas in London. ``It's probably not too long before the weapons inspectors stumble upon something that's a more clear breach of the UN resolutions.'' A war may hurt the dollar by making it harder for the U.S. to attract sufficient foreign capital to offset its current-account deficit as investors choose to lower risk by keeping their funds at home, analysts said. Mohamed ElBaradei, director of the UN's International Atomic Energy Agency, said he and Blix will make the request to avoid a war. Blix today repeated his call for Iraq to be more cooperative with inspectors. Blix and ElBaradei are traveling from Paris to London for a meeting today with U.K. Prime Minister Tony Blair before heading to Iraq over the weekend.
`Empty Rockets'
General Hossam Mohammad Amin, Iraq's chief liaison officer with the inspectors, said they were ``just empty rockets which are expired,'' and the incident is ``no more than a storm in a teacup,'' the Associated Press said. The dollar may also weaken on concern a war may crimp growth in the world's biggest economy, analysts said. A conflict may weigh on U.S. consumer confidence, which fell in December for the sixth time in seven months, analysts said. Growth may struggle to accelerate from last quarter's estimated 1.4 percent annual pace if consumers, who account for two-thirds of the economy, slow spending, they said. Consumer spending may also be hurt if war keeps oil prices high, analysts said. Crude oil for February delivery was near a two-year high of $33.67 a barrel in after-hours electric trading on the New York Mercantile Exchange. The price of oil has climbed 78 percent in the past 12 months. ``The U.S. economy is still in a fragile state,'' said Peter Stoneham, a senior currency analyst at Thomson Financial. Concern about ``the war and its effect on the economy is bubbling away,'' and may push the pound up to $1.6350 over the next three weeks. U.S. unemployment is at an eight-year high of 6 percent, while retail sales rose less than expected last month, recent reports showed. The University of Michigan's preliminary consumer confidence index for January is likely to rise to 87 from 86.7 last month, economists surveyed by Bloomberg expect a report at 2:50 p.m. London time to show. A reading of 87 would mean the index gained 8 percent since October, when it reached a nine-year low of 80.6. //www.quote.bloomberg.com