Yen Falls as U.S. Stock Futures Rise on Goldman Fundraising

By Stanley White and Ron Harui

Sept. 24 (Bloomberg) -- The yen declined after the Federal Reserve announced it extended currency swap agreements and as Goldman Sachs Group Inc. said it will raise funds, giving investors confidence to buy higher-yielding assets.

The yen dropped the most this week against the dollar and euro as U.S. stock futures rose and Asian shares pared losses. Goldman Sachs secured a $5 billion stock investment from Warren Buffett's Berkshire Hathaway Inc. The Fed arranged $30 billion in swaps with central banks in Australia, Denmark, Norway and Sweden to ease short-term dollar funding.

``There's a case for the yen to weaken,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., a unit of the U.K.'s third-biggest bank. ``People are focused on the stock market, so gains in Europe and the U.S. on Goldman's capital injection could calm nerves.''

The yen fell to 155.77 per euro at 7:49 a.m. in London from 154.63 late yesterday in New York. It was at 106.06 versus the dollar from 105.56. The dollar fell to $1.4688 per euro from $1.4648. The British pound traded at $1.8541 from $1.8522. The yen may decline to 106.30 per dollar today, Ogawa said.

China's yuan fell by the most in three weeks against the dollar on speculation China will limit currency gains as exports slow and global financial turmoil escalates. The currency dropped 0.14 percent to 6.8232. The South Korean won fell 0.5 percent to 1,154.5 on speculation investors will sell Asian stocks.

Stocks Futures

Standard & Poor's 500 Index futures expiring in December climbed 1.4 percent and Dow Jones Industrial Average futures added 1.2 percent. Japan's Nikkei 225 Stock Average was little changed, erasing an earlier decline of as much as 1.5 percent.

In so-called carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits.

The yen fell 1 percent to 88.81 per Australian dollar from the New York close and 0.7 percent to 72.40 versus the New Zealand dollar. The Bank of Japan's benchmark rate of 0.5 percent compares with 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand.

Goldman said it also plans to sell at least $2.5 billion of common stock to the public as the bankruptcy of Lehman Brothers Holdings Inc. and emergency sale of Merrill Lynch & Co. to Bank of America Corp. on Sept. 15 have fueled fears that investment banks that rely on borrowing to fund their business won't survive credit and mortgage losses.

Government Bailout

The dollar fell against the euro as the U.S. Congress may prolong debate on the government's $700 billion proposal to remove illiquid assets from the banking system.

U.S. lawmakers have balked at rubber-stamping the Treasury's plan, with Democrats demanding it include support for homeowners and limits on executive pay. Republicans are also resisting the plan, which economists predict would push the budget deficit to an all-time high next year.

Fed Chairman Ben S. Bernanke gives congressional testimony on the U.S. economy at 10 a.m. in Washington today. He and Treasury Secretary Henry Paulson said yesterday the bailout is needed to avert a recession in the world's biggest economy.

``The dollar will face a lot of pressure to go lower,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Uncertainty about when the U.S. rescue package will pass and how much of a burden it will place on future generations is damaging confidence in the dollar.''

The dollar may decline to $1.4710 per euro today, he forecast.

Dollar Pressure

The U.S. currency has lost about 5.5 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its 1999 debut.

The U.S. National Association of Realtors will say today that house purchases declined to a 4.94 million annual pace from 5 million in July, according to a Bloomberg survey. The report is due at 10 a.m. New York time. Sales reached a 4.85 million pace in June, the fewest since comparable records began in 1999.

The Commerce Department is forecast to report that sales of new houses dropped to an annual pace of 510,000 from 515,000 in July, according to a separate survey before tomorrow's data. Sales of existing and new homes are down 35 percent from their July 2005 peak.

The chance of the Fed cutting its 2 percent benchmark rate by a quarter-percentage point at its Oct. 29 policy meeting was 58 percent yesterday, compared with zero a month ago, futures contracts on the Chicago Board of Trade showed.

Housing Market

The U.S. Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six major trading partners, reached 75.890 on Sept. 22, the lowest since Aug. 13. It was at 76.676 from 76.468 yesterday.

``The housing market is still slowing and the poor state of the economy is likely to continue,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest bank by assets. ``Sentiment is bad toward the dollar,'' which may weaken to 105 yen today, he said.

Gains in the euro may be limited by speculation weakening German business confidence will add to evidence that growth is slowing in the 15 countries that share the currency.

The Ifo institute's business climate index declined to 94.3 in September from 94.8 in August, according to the median of 41 forecasts in a Bloomberg News survey. That would be the weakest reading since June 2005. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today.

European Recession?

``The Ifo may be an ugly number, showing there are still concerns whether the euro zone will fall into a recession,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``You will see some euro selling again.''

The euro may fall to $1.4580 and 154.00 yen today, he said.

The U.S. currency has lost about 5.5 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its 1999 debut.

The U.S. dollar may extend its decline to parity with the Canadian dollar, according to charts that predict price movements, said Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London. The greenback last traded at C$1.0347 from C$1.0384.

Daily and weekly momentum indicators such as the stochastic oscillator and Goldman's ``Trend Strength'' charts are both ``bearish,'' Edgeley wrote in a research note yesterday. ``There is scope for further extension toward the potential trend line support from February around C$1.0000.''

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netRon Harui in Singapore at rharui@bloomberg.net