N.Z. Dollar Gains Most in 2 Months Versus Yen on Stock Rally

By Candice Zachariahs

July 9 (Bloomberg) -- The New Zealand dollar rose the most in almost two months against the yen as a rally in U.S. stocks encouraged investors to buy high-yielding assets.

The kiwi, as the local currency is called, gained as investors entered so-called carry trades, funded in Japan. The Standard & Poor's 500 Index strengthened 1.7 percent.

``Equities are doing well and risk appetite has recovered,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. ``There's no denying that the New Zealand dollar still offers an attractive return.''

New Zealand's dollar rose 1 percent to 81.01 yen at 8:38 a.m. in Wellington, from 80.23 yen in late Asian trading yesterday. The currency gained 1.3 percent on May 16. It bought 75.37 U.S. cents from 75.10 U.S. cents.

The benchmark interest rate in New Zealand is 8.25 percent compared with 0.5 percent in Japan and 2 percent in the U.S. In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the borrowing and lending rates. The risk is currency market moves erase those profits.

New Zealand's dollar is the worst performer of the 16 most- traded currencies in the past three months.

Reserve Bank Governor Alan Bollard said on June 5 it is ``likely'' he will reduce interest rates this year because weak economic growth is slowing inflation. Two of 13 economists surveyed by Bloomberg News expect a reduction to 8 percent at the next meeting on July 24.

To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net