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LONDON, March 22 (Reuters) - Sterling recovered and government bond futures fell back on Wednesday, after an assailant was shot outside the UK parliament by police, loud bangs were heard and a Reuters photographer saw at least a dozen injured people.
British police said they were treating the incident as a terrorist incident until they knew otherwise.
Sterling had hit the day's lows against the dollar and euro initially, while bond futures hit the day highs, but both had reversed those moves by 1537 GMT.
Having fallen to as low as $1.2424, sterling was trading at $1.2460, down just 0.1 percent on the day, and up from the $1.2451 level at which it had been trading before news of the incident broke.
Having also hit the day's low of 87 pence per euro , sterling recovered to trade at 86.83 pence.
"It's all very unclear at the moment. Obviously there was a knee-jerk reaction, sterling sold 30 pips lower," said Chris Hawkes, an FX dealer at ETX Capital.
"It's now trading back up and I think that's basically on the news that it looks as though the initial threat has been nullified."
A parliamentary official earlier said two people had been shot outside parliament and the building was in lockdown. The House of Commons session was suspended and members of parliament who were in the chamber were told to remain there.
Britain’s blue-chip FTSE 100 and mid-caps share indexes pared earlier losses, last down 0.6 and 0.9 percent on the day respectively. The indexes, with their majority foreign currency earning constituents, tend to react positively to weakness in sterling.
British government bond futures also fell back from the session high struck after news of the incident. (Reporting by Jemima Kelly, Ritvik Carvalho, David Milliken and Helen Reid, editing by Nigel Stephenson)