By Daniel Kruger and Agnes Lovasz
Nov. 10 (Bloomberg) -- The yen fell the most against the euro in almost a week on speculation China's $586 billion stimulus package will give investors more confidence to buy higher-yielding assets using money borrowed in Japan.
Japan's currency also dropped against the dollar, the Australian dollar and South Africa's rand as the carry trade got a boost from China's announcement yesterday. The dollar weakened against the euro and India's rupee after the Group of 20 nations said they're ready to act ``urgently'' to support global growth, reducing demand for the safety of U.S. assets.
``Any time you have yen carry being put back on, the high- yielders benefit,'' said Andrew Busch, a currency strategist at BMO Capital Markets in Chicago. ``It's part and parcel of the risk being put back on.''
The yen fell 1.2 percent to 126.46 per euro at 10:03 a.m. in New York, from 124.90 on Nov. 7. Against the dollar, it dropped 0.5 percent to 98.74 from 98.24. The euro rose 0.7 percent to $1.2807 from $1.2718.
China announced its stimulus plan, equivalent to almost a fifth of last year's gross domestic product, as major export markets slumped. Japan will contract 0.2 percent next year, the U.S. by 0.7 percent and the euro area 0.5 percent, while China will expand 8.5 percent, said the International Monetary Fund last week, predicting the first simultaneous recession in the U.S., Japan and the euro countries since World War II.
Yen Versus Rand
The yen fell 3 percent to 9.9518 against the rand, 2.8 percent to 68.09 versus the Aussie and 2 percent to 59.26 against New Zealand's dollar on bets investors will resume carry trades, in which they get funds in countries with low borrowing costs and buy higher-yielding assets elsewhere. Japan's target rate of 0.3 percent compares with 12 percent in South Africa, 5.25 percent in Australia and 6.5 percent in New Zealand.
Japan's currency also weakened as volatility implied by one-month dollar-yen options fell to 22.04 percent, the lowest since Oct. 22, indicating reduced risk of exchange-rate fluctuations that can make the carry trade unprofitable.
Global stocks rose as appetite for higher-yielding assets increased. The Standard & Poor's 500 Index climbed 1.9 percent, while the Dow Jones Stoxx 600 Index advanced 1.6 percent.
China's economic stimulus package is giving risk a boost, though ``there's more that needs to be done,'' said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. ``We're seeing a nice bounce, but we don't expect it to last.''
G-20 Meeting
The G-20 industrial and emerging nations, meeting yesterday in Sao Paulo, called on countries to cut interest rates and raise spending to combat the threat of a global recession.
Brazil, Russia, India and China, the so-called BRIC nations, plan coordinated measures to increase trade and capital flows among their economies, Russian Finance Minister Alexei Kudrin said in an interview on Nov. 8 in Sao Paulo.
The rupee climbed 0.6 percent to 47.3750 per dollar, the real rose 1.6 percent to 2.1310, the ruble gained 0.2 percent to 26.9846 and China's yuan was little changed at 6.8267.
Russia may be forced to accept a devalued ruble as tumbling oil prices and an exodus of capital erode the country's foreign- exchange reserves, the world's third-largest. The currency may slump as much as 30 percent in the event of devaluation, Troika Dialog, Russia's oldest investment bank, said last week. Reserves fell 19 percent to $484.6 billion in the 12 weeks through Oct. 31.
Gains in the euro may be curbed after European Central Bank President Jean-Claude Trichet told Brazil's TV Globo he can't rule out a further rate reduction, according to traders.
`More' ECB Cuts
Traders increased bets the ECB will reduce its 3.25 percent rate in the first quarter of next year. The implied yield on Euribor interest-rate futures contracts expiring in March fell to 2.935 percent today from 3.005 percent on Nov. 7.
``There's talk of more ECB rate cuts, given the pessimistic outlook on Europe's economies,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The medium- to long-term downtrend for the euro is likely to persist.''
The dollar may rise this week to so-called resistance at the Nov. 4 high of 100.55 yen, according to Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo, who uses charts to predict currency movements. Resistance is where sell orders may be clustered. The greenback is poised to gain after breaking above its 20-day moving average, Suzuki said.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net
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