Euro Rises as Stocks Advance, German Unemployment Declines

By Andrew MacAskill

Nov. 27 (Bloomberg) -- The euro rose against the dollar as European stocks advanced for a fourth day and a report showed unemployment declined in Germany, the region’s largest economy.

The currency shared by 15 European nations also gained versus the Brazilian real and New Zealand dollar as every major stock market in the region rose. German unemployment dropped in November, withstanding the worst recession in 12 years. Indian rupee forwards fell on speculation overseas investors will shun the nation’s assets after terrorist attacks in Mumbai prompted regulators to shut markets.

“We are seeing an increase in risk appetite and the euro is rising along with it,” said Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France’s biggest bank. “People are taking positions with that bullish perception.”

The euro advanced to $1.2906 at 1:04 p.m. in London from $1.2880 yesterday, when it fell 1.4 percent. It bought 123.06 yen from 123.24 yen. The dollar declined to 95.39 yen, from 95.67 yesterday, when it rose 0.5 percent. The euro strengthened 0.4 percent versus the New Zealand dollar to NZ$2.3409 and 1.5 percent to 2.91 real.

The Dow Jones Stoxx 600 Index climbed 1.5 percent, its fourth straight gain, as investors bet government efforts to shore up banks and the economy will support profits. In Germany, the number of people out of work, adjusted for seasonal swings, fell 10,000 in November to 3.15 million, the Nuremberg-based Federal Labor Agency said today. The adjusted unemployment rate held at 7.5 percent, a 16-year low.

India Attacks

Rupee one-month non-deliverable forwards fell 0.7 percent to 50.35 per dollar after terrorists targeted foreigners in five-star hotels in Mumbai, leaving 101 people dead and 290 injured. Forwards are agreements in which assets are bought and sold at current prices for delivery at a later specified time and date. Non-deliverable contracts are settled in dollars.

The dollar fell after the biggest drop in U.S. consumer spending in seven years reported yesterday fanned speculation the Federal Reserve will cut interest rates to help avert a prolonged recession. The currency also slid as the Fed’s $800 billion plan to revive mortgage lending and consumer loans sent 10-year credit-default swaps on U.S. government bonds to a record high yesterday.

“Everyone was expecting poor U.S. data and it was even worse,” said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest bank. “Weak data is a problem for the dollar because it shows there are big economic difficulties that need to be resolved.”

Currency moves may be exaggerated today because U.S. financial markets are closed for the Thanksgiving Day holiday.

U.S. Holiday

“With the U.S. out for Thanksgiving, we are going to see thin liquidity and could see large moves,” said Christian Lawrence, a currency strategist in London at Royal Bank of Canada Capital Markets. “Today is going to be driven by flow, not by fundamentals or news, so we may see jumping around.”

The ICE’s Dollar Index, which tracks the greenback against the currencies of six major trading partners, declined 0.1 percent to 85.543. The U.S. Commerce Department report yesterday showed consumer spending dropped 1 percent in October.

Futures on the Chicago Board of Trade show a 36 percent chance the Fed will cut its 1 percent target rate for overnight bank loans by 0.75 percentage point at its Dec. 16 meeting, up from 32 percent a week ago.

The Fed committed up to $800 billion on Nov. 25 in new funding to thaw credit flow for homebuyers, consumers and small businesses and will take on credit risk by buying debt.

Contraction

The cost of a 10-year credit-default swap on U.S. government bonds jumped seven basis points to 57 basis points yesterday. The contracts rose from below two basis points at the start of the credit crisis in July 2007. A basis point is 0.01 percentage point.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

The U.S. economy will contract 2.05 percent in the fourth quarter, according to a Bloomberg survey, after shrinking by 0.5 percent in the previous three-month period.

The euro’s gain against the dollar was the fourth in five days. Consumer prices in the euro region rose 2.4 percent in November, slower than a 3.2 percent gain the previous month, a report tomorrow may show.

Rate Cut

The euro region fell into a recession in the third quarter for the first time since the introduction of the common currency in 1999, data on Nov. 14 showed.

“The currency market is more focused on the bad economic outlook,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co. Ltd., a unit of Japan’s largest brokerage. “We may see euro selling on expectations for lower rates.”

Traders increased bets the ECB will reduce its 3.25 percent benchmark rate in the second quarter. The implied yield on Euribor futures contracts expiring in June fell to 2.44 percent from 2.91 percent at the end of last month.

To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net