Euro Falls to Lowest Since 2003 Against Yen as Stocks Plunge

By Stanley White and Ye Xie

Oct. 23 (Bloomberg) -- The euro fell to the lowest level since January 2003 against the yen as global stocks plunged, encouraging investors to sell higher-yielding assets and pay back low-cost loans in Japan.

The 15-nation currency dropped below $1.28 for the first time since November 2006 yesterday and the pound tumbled to a five-year low on bets Europe's central banks will cut borrowing costs as the global economy heads for a recession. The Brazilian real and the Russian ruble dropped against the dollar as speculation Argentina will default reduced demand for emerging- market assets.

``The stock rout is likely to push the yen up further against the euro,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The pound also looks vulnerable due to weak economic fundamentals. People are giving up on emerging markets, which is another sign investors don't want to take on risk.''

The euro was at 124.58 yen as of 8:29 a.m. in Tokyo from 125.60 late yesterday in New York, after touching 124.13, the lowest level since January 2003. The euro traded at $1.2728 from $1.2855 late yesterday, the weakest level since November 2006. The yen traded at 97.53 per dollar from 97.66.

Sterling declined to $1.6167 from $1.6267. after touching $1.6139 yesterday, the lowest since September 2003. It dropped as much as 3.4 percent, the biggest decline since September 1992, when investor George Soros drove the currency out of Europe's system of linked exchange rates. The pound was at 78.80 pence per euro.

Yen's Gain

The yen extended gains on speculation stock losses will spread to Asia, prompting investors to unwind carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's currency gained 2.1 percent to 64.64 against the Australian dollar and 1.4 percent to 13.3717 versus the Norwegian krone. The Bank of Japan's target lending rate of 0.5 percent compares with 6 percent in Australia and 5.25 percent in Norway.

The Standard & Poor's 500 Index dropped to the lowest level since April 2003 yesterday on concern a worsening global economic slump will damp corporate profits.

The New Zealand dollar remained lower against its U.S. counterpart today after the Reserve Bank cut the official cash rate by 1 percentage point to 6.50 percent. The kiwi fell 1.2 percent from late yesterday in Asia to 58.86 U.S. cents.

Emerging-market currencies weakened yesterday as Argentina's planned seizure of private pension funds stoked concern the nation faces its second default this decade. The government of President Cristina Fernandez de Kirchner proposed on Oct. 21 taking control of 10 funds, including units of HSBC Holdings Plc and Banco Bilbao Vizcaya Argentaria SA.

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