Yen Near 2-Year High Versus Euro on Concern About Lehman Sale

By Stanley White and Ye Xie

Sept. 12 (Bloomberg) -- The yen traded near a two-year high against the euro, after gaining every day this week amid concern Lehman Brothers Holdings Inc. may collapse, prompting sales of higher-yielding assets funded with cheap loans in Japan.

The yen appreciated against all major currencies yesterday on concern about Lehman's capacity to raise capital after posting a record loss. U.S. officials are helping Lehman find a buyer, a person familiar with the matter said. The dollar rose to the strongest in a year against the euro yesterday on evidence the economic slump that started in the U.S. has spread to the rest of the world.

``The market would welcome a resolution that ends the uncertainty,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``These things tend to happen over the weekend, so the market may be waiting for a deal to go through before it takes carry trades higher.''

The yen was little changed at 149.96 per euro at 8:13 a.m. in Tokyo from 149.98 yesterday, when it touched 147.54, the strongest in more than two years. The U.S. currency traded at $1.3994 per euro, after reaching $1.3882 yesterday, the strongest level since Sept. 18, 2007. The yen was at 107.16 per dollar, from 107.17.

The U.S. Treasury and the Federal Reserve have been working with Lehman on a sale, and a deal may be announced before Asian markets open Sept. 15., a person with knowledge of the matter said. The government isn't likely to contribute money, the person said. Bankers from other firms were reviewing Lehman's books today, according to people with knowledge of the situation, who declined to identify potential acquirers.

The Standard & Poor's 500 Index rose 1.7 percent yesterday after earlier falling to its lowest level since 2005.

Dollar's Gains

The ICE's Dollar Index touched 80.375 yesterday, the highest level since September 2007, when the Fed began cutting the target lending rate from 5.25 percent to 2 percent to stave off a recession. The index, a gauge measuring the dollar against the currencies of six U.S. trading partners, reached a low of 70.698 on March 17.

The dollar strengthened beyond 1.80 versus the Brazilian real yesterday for the first time since January and reached $1.7447 against the pound, the strongest level since April 2006.

``The global slowdown has dimmed the allure of higher yields abroad,'' wrote Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, in a research note to clients yesterday.

The dollar has gained 13 percent since touching the all- time low of $1.6038 per euro on July 15 as the European economy slumped and crude oil dropped more than 30 percent to $100.31 a barrel from its peak of $147.27.

`Perception of Risk'

Industrial output in the 15 nations that use the euro probably fell 0.2 percent in July after a drop of the same amount in the previous month, according to the median forecast of 31 economists surveyed by Bloomberg News. The report from the European Union's statistics office is due today.

``We're looking at a much weaker level for the euro over the next year,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., in an interview on Bloomberg Television. ``Europe, Japan and Asia can't have strong growth with the U.S. so weak. The decoupling story is a mirage.''

Canada, Brazil

Canada's dollar fell yesterday to the weakest since August 2007 after a government report showed the nation's trade surplus shrank in July as crude oil prices declined. The currency touched a one-year low of C$1.0821 per U.S. dollar.

Japan's currency rose 2.1 percent to 59 versus the Brazilian real yesterday and 0.2 percent to 13.09 against the South African rand on speculation investors will reduce carry trades, which involve getting funds in a country with low borrowing costs and buying assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 13.75 percent in Brazil and 12 percent in South Africa.

``We're in a situation where we're likely to see the current environment of slower global growth, lower interest rates, more risk reduction and deleveraging,'' said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. ``All suggest to me this process of unwinding the carry trades is going to continue.''

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netYe Xie in New York at yxie6@bloomberg.net