Dollar Gains on U.S. Government Plan to Revive Credit Markets

By Ron Harui and Stanley White

Sept. 19 (Bloomberg) -- The dollar gained versus the yen for a second day on U.S. government plans to revive credit markets and prevent further finance industry collapses.

The yen fell for a third day against the Australian and New Zealand dollars as Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke pledged to formulate a ``comprehensive approach'' that will revive the market for mortgage-related debt.

``The plan is likely to be welcomed by the markets and will probably safeguard the U.S. financial system,'' said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France's largest bank by market value. ``This is dollar- supportive.''

The dollar rose to 106.18 yen at 9:45 a.m. in Tokyo, after increasing 0.8 percent yesterday. The U.S. currency climbed to $1.4245 per euro from $1.4348. It strengthened to $1.8060 per British pound from $1.8181 for its first gain in three days. The euro traded at 151.26 yen from 151.28 yen, following a 0.9 percent gain yesterday.

The South Korean won rose to 1,124 per dollar from 1,154 on optimism the global credit crunch will ease, boosting overseas demand for local shares. Japan's Nikkei 225 Stock Average surged 2.7 percent after the Standard & Poor's 500 Index rallied 4.3 percent yesterday.

U.S. regulators, who met with lawmakers late yesterday, are seeking support for a way to help banks remove illiquid mortgage-related assets from their balance sheets. Congressional leaders said they intend to pass legislation within days.

`Systemic Risk'

Sen. Charles Schumer, a Democrat who chairs the congressional Joint Economic Committee, proposed an agency to inject funds into financial companies in exchange for equity stakes and pledges to rewrite mortgages to make them more affordable. He spoke with reporters yesterday in Washington.

The yen dropped 0.9 percent to 85.17 versus Australia's dollar and 0.5 percent to 71.30 against New Zealand's dollar on bets investors will resume trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 7.5 percent in New Zealand.

Japan's currency jumped 3 percent against the dollar on Sept. 15, the most in a decade, as Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in history, sparking a global stock-market rout. The U.S. government's $85 billion rescue of American International Group Inc. failed to calm investors.

The Fed almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the aftermath of the 1929 Wall Street crash.

``The last 12 to 18 hours have been an unambiguous good for the financial world and the global economy,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane, Australia. ``The first response is the yen isn't an attractive asset now.''

To contact the reporter on this story: Ron Harui in Tokyo at rharui@bloomberg.net; Stanley White in Tokyo at Swhite28@bloomberg.net