Nordic Currencies: Sweden's Krona Trades Near Two-Month High

By Bo Nielsen

Aug. 14 (Bloomberg) -- Sweden's krona traded near a two- month high versus the euro after a government report showed industrial production unexpectedly increased in June. Iceland's krona advanced the most this month versus the dollar.

Output gained 0.6 percent from May, when it fell a revised 0.8 percent, Statistics Sweden today said. The median estimate of eight economists surveyed by Bloomberg News was for a contraction of 0.3 percent. Europe's gross domestic product fell 0.2 percent from the first quarter, the first contraction since the launch of the euro almost a decade ago, the European Union statistics office in Luxembourg said today.

``We still believe in a stronger krona versus the euro,'' said Camilla Viland, a currency strategist in Oslo for DnB NOR ASA, Norway's biggest bank. ``It doesn't look too good in the Swedish economy but it's even worse in the rest of Europe.''

The Swedish krona traded at 9.3839 per euro by 2:15 p.m. in Stockholm, from 9.3743 yesterday, taking its appreciation since Aug. 1 to 1 percent. It was at 6.2922 per dollar, from 6.2838. Iceland's krona rose 1.3 percent to 80.88 per dollar from 81.95, the biggest gain since July 31.

The Stockholm-based Riksbank raised its benchmark interest rate to 4.5 percent last month, the second increase this year, to curb inflation. Swedish policy makers should be prepared to raise rates further, the Washington-based International Monetary Fund said this week.

The yield on Sweden's 5.25 percent government note due March 2011 rose 3 basis points, or 0.03 percentage points, to 4.29 percent. Bond yields move inversely to prices.

Icelandic Krona

Iceland's krona gained after a report from the country's regulator showed its four biggest banks have enough capital to withstand heavy losses, boosting optimism the central bank will be more able to act as lender of last resort to a financial industry that is almost nine times the size of the economy.

Kaupthing Bank hf, Landsbanki Islands hf, Glitnir Bank hf and Straumur-Burdaras hf would all continue to have capital ratios above the minimum requirement of 8 percent if they suffered simultaneous and significant losses, the Reykjavik-based FME said in a statement today.

The yield on the Norwegian 6 percent government note due May 2011 tumbled 19 basis points to 4.81 percent, the lowest level since May 16, after the Norges Bank, led by Governor Svein Gjedrem, held rates steady yesterday and said ``growth in the world economy is slowing markedly.''

The Norwegian krone was at 8.0160 per euro, from 8.0310 yesterday, and at 5.3765 per dollar, from 5.3835.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net