Yen Gains as U.S. Government Weighs Up Citigroup Rescue Plan

By Candice Zachariahs

Nov. 24 (Bloomberg) -- The yen climbed against the dollar and the euro as discussions over a possible U.S. government bailout of Citigroup Inc. prompted investors to shun higher- yielding overseas assets funded from Japan.

Japan's currency also advanced against the Australian and New Zealand dollars, two favorites of so-called carry trades, as U.S. regulators held talks with Citigroup to limit the lender's potential losses on more than $100 billion of toxic assets after the bank's shares plunged 60 percent last week.

``The fact that we're waiting for further news on official support for Citigroup is leaving markets a little bit on the defensive,'' said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. ``These issues around Citi are a particularly U.S. problem.''

Japan's currency rose 0.8 percent to 95.15 per dollar as of 10:08 a.m. in Tokyo from 95.94 in New York on Nov. 21. It climbed 0.8 percent to 119.75 per euro. The dollar was little changed at $1.2587 per euro. Foreign-exchange movements may be exaggerated because trading volumes are lower than usual due to a Japanese public holiday today, Morriss said.

The yen climbed 2 percent to 59.48 versus the Australian dollar and 1.9 percent to 50.44 against the New Zealand dollar. Japan's benchmark interest rate of 0.3 percent is the lowest among major economies.

The Federal Reserve and Treasury Department were locked in discussions with Citigroup and other regulators throughout the weekend and a deal may be reached before the start of trading this week in New York, according to people familiar with the talks. The non-performing assets would remain at Citigroup, with the government agreeing to assume losses beyond a specified amount, two of the people said.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net