Nordic Currencies: Norway's Krone Drops on Lehman Bankruptcy

By Bo Nielsen

Sept. 15 (Bloomberg) -- Norway's krone dropped against the euro by the most in six months as investors sold higher-yielding assets after Lehman Brothers Holdings Inc. filed for bankruptcy, sparking concern about another round of financial-market turmoil. Sweden's krona fell to the lowest level since November 2005.

The Norwegian currency also slipped as the price of oil, the country's biggest export, slid to the lowest level since February as refineries along the Gulf of Mexico coast escaped major damage from Hurricane Ike.

The krone declined as much as 1.1 percent to 8.2218 per euro, and was at 8.2057 by 9:07 a.m. in Oslo, from 8.1313 on Sept. 12. It advanced 0.2 percent to 5.7272 per dollar.

Crude oil fell as much as 2.7 percent to 98.46 a barrel in New York, the lowest level since Feb. 26.

The Swedish krona dropped 0.5 percent to 9.5699 per euro, after slipping to 9.5881, the weakest in almost three years. It rose 0.1 percent to 6.6887 against the dollar.

Investors sold the dollar after New York-based Lehman petitioned the U.S. Bankruptcy Court for the Southern District of New York today, according to a statement. The collapse of Lehman, which has more than $613 billion of debt, surpasses Drexel Burnham Lambert's failure in 1990.

Merrill Lynch, the biggest brokerage, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal reached yesterday.

Investors also sold higher-yielding currencies such as the New Zealand and Australian dollar. Sweden's benchmark interest rate of 4.75 percent and Norway's main rate of 5.75 percent are only topped by New Zealand, Australia among the Group of 10 nations.

Yen Favored

When risk aversion is lower, investors borrow in low- yielding currencies such as the yen to buy assets in higher- yielding countries like Norway, in so-called carry trades. When risk aversion spikes the trades are unwound. The yen is the best performer today among the major currencies monitored by Bloomberg.

In other trading, Iceland's krona rose 0.5 percent to 89.13 against the dollar. The central bank, or Sedlabanki, last week kept its benchmark interest rate at a record 15.5 percent, in line with a Bloomberg survey.

Nordic government bonds rose as investors sought refuge in the relative safety of fixed-income securities, with the yield on Sweden's 5.25 percent note due March 2011 falling 17 basis points to 4.01. The yield on Norway's 6 percent bond maturing May 2011 slipped 1 basis point to 5.01 percent, according to Danske Bank A/S prices. Yields move inversely to bond prices.

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