By Stanley White
Nov. 5 (Bloomberg) -- The euro fell against the dollar after European Central Bank member Juergen Stark said policy makers are ready to use interest-rate policy to bolster the region's shrinking economy.
The 15-nation currency also declined against the yen as Stark's comments, cited by the Financial Times Deutschland in an interview, bolstered expectations the ECB will lower its 3.75 percent benchmark rate at a meeting tomorrow. The South Korean won led gains in Asian currencies as a surge in global stocks encouraged investors to return to emerging markets.
``Our basic view is euro depreciation,'' said Osamu Takashima, chief analyst for global market sales and trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly listed lender. ``Economic momentum in the euro- zone has decreased dramatically. I expect the ECB to continue monetary easing into the first half of next year.''
The euro fell to $1.2922 at 10:46 a.m. in Tokyo from $1.2981 late yesterday in New York. It weakened to 128.60 yen from 129.47 yen. The dollar bought 99.54 yen from 99.70 yen. The euro may fall to $1.18 in the third quarter of next year, Takashima said.
``We're ready to use all instruments at our disposal and the main instrument is interest-rate policy as long as our mandate'' to contain inflation ``allows it,'' Stark was quoted as saying. The inflation environment ``dramatically changed,'' he added.
The ECB will lower its main refinancing rate by a half- percentage point to 3.25 percent tomorrow, according to all 54 economists in a Bloomberg News survey.
Election Day
The won rose to 1,272.00 per dollar from 1,288.25 in late Asian trading as Asian stocks tracked a rally on Wall Street. The MSCI Asia Pacific Index gained 3 percent after U.S. shares posted their biggest presidential Election Day rally in 24 years. The Philippine peso rose 0.4 percent to 48.22 per dollar.
Republican presidential nominee John McCain claimed 32 electoral votes, while Democratic rival Barack Obama took 99 electoral votes, television networks projected. A candidate needs 270 electoral votes to win the election.
``The election so far is playing out as supportive of risk, supportive of some of the other variables that are giving out positive risk appetite signals,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``The dollar has had a very consistent relationship of late where equity strength is associated with dollar weakness.''
The pound fell 0.5 percent to $1.5874 after a report showed Britain's construction industry contracted in October at the fastest pace in more than a decade. The Bank of England will cut its main interest rate by a half-percentage point to 4 percent tomorrow, according to the median forecast of 60 economists surveyed by Bloomberg News.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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