By Sruthi Shankar

(Reuters) – Financial stocks led Britain’s blue-chip index lower on Wednesday as gilts continued their selloff, while Barratt Developments’ disappointing results deepened worries for the battered housing sector.

The FTSE 100 fell 0.9% extending losses for a sixth straight session, while the midcap FTSE 250 index dropped 1.7%.

The pound rose 1.1% in a volatile session after Bank of England (BoE) Governor Andrew Bailey told pension funds they had three days to fix liquidity problems before the bank ends emergency bond-buying that has provided support.

Reports signalling that the BoE could extend bond purchases had calmed the mood earlier but the central bank confirmed gilt purchases will end on Friday.

Twenty and 30-year gilt yields both hit their highest since 2002 at 5.195% and 5.1% respectively, passing above 5% for the first time since the BoE began buying bonds on Sept. 28 to calm turmoil triggered by Prime Minister Liz Truss’s tax cut plans.

Shares of rate-sensitive banks, homebuilders and insurers extended losses as gilt yields continued to rise.

“While more of the action in terms of this crisis is playing out in the gilt market and the pound, it does seem like UK equities, particularly the domestically focussed companies, are struggling by more than you might expect if it were just global factors weighing on it,” said Oliver Allen, senior markets economist at Capital Economics.

“That makes sense given one sharp feature about this crisis is rise in bond yields. There are worries about the housing market in the UK, and it is posing a darker cloud over the economic outlook.”

Data earlier showed Britain’s economy shrank by 0.3% in August, hit by weakness in manufacturing and maintenance work in North Sea oil and gas fields, underscoring the challenge for Prime Minister Liz Truss to speed up growth.

Adding to concerns about economic slowdown, U.S. producer prices rose more than expected in September suggesting inflation will keep the Federal Reserve on its aggressive rate hike path in the world’s largest economy.

Britain’s largest homebuilder Barratt Developments Plc fell 5.1% after it said its annual outlook looked “less certain” as homebuyers face rising mortgage rates and a worsening cost-of-living crisis.

The wider housing index fell 4.4%.

(Reporting by Sruthi Shankar and Bansari Mayur Kamdar in Bengaluru; Editing by Savio D’Souza and Neha Arora)