My problem was solved by opening post at linuxquestions.org, where they 
suggest that I run ./autogen.sh. Actually I had copy of gpm-1.20.6 so I 
installed that, but will try installing as suggested by LQ.
http://www.linuxquestions.org/questions/linux-from-scratch-13/gpm-no-configure-gpm-1-20-7-a-4175437753/
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