Euro Falls on Speculation German Economic Sentiment Weakened

By Stanley White

Dec. 9 (Bloomberg) -- The euro fell against the dollar before German economic sentiment data that may show pessimists outnumbered optimists for a 17th month, allowing more scope for the European Central Bank to lower interest rates.

The euro also declined against the yen as a recession in the euro-zone reduces the appeal of assets denominated in the currency. The South Korean won rose for a third day against the dollar on speculation official efforts to tackle the global economic crisis will boost Asian stocks and encourage overseas investors to buy the country’s shares.

“The euro is being pulled off its highs,” said Akio Shimizu, chief manager of foreign exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “No one is expecting the ZEW survey to show anything flattering about the European economy.”

The euro declined to $1.2916 as of 10:06 a.m. in Tokyo from $1.2963 late yesterday in New York. It fell to 119.94 yen from 120.26, when it rose to 120.96, the highest since Dec. 1. The dollar was little changed at 92.83 yen.

The South Korean won rose 0.5 percent to 1,441.00 per dollar. The government will spend more than half of next year’s budget in the first half to help spur the economy, Vice Finance Minister Bae Kook Hwan said today.

ZEW

Investor confidence in German’s economy, Europe’s largest, worsened in December, the ZEW Center for European Economic Research’s index of investor and analyst expectations will probably show today. The index fell to minus 57 from minus 53.5 in the previous month, according the median estimate of 38 economists in a Bloomberg News survey. The data are due at 11 a.m. in Mannheim today.

ECB members Ewald Nowotny, Erkki Liikanen and Lorenzo Bini- Smaghi speak today. Risks to price stability in the 15 countries sharing the euro have fallen “significantly,” central bank President Jean-Claude Trichet said yesterday in an interview with the British Broadcasting Corp.

ECB forecasts published last week show the euro-region economy will shrink about 0.5 percent next year, which would be its first full-year contraction since 1993.

Stocks Gain

The MSCI Asia-Pacific index of regional shares rose 1.1 percent, for the third day of gains. The Standard & Poor’s 500 Index jumped 3.8 percent yesterday. Japan’s yen traded in the opposite direction of the index more than 90 percent of the time in the past month, data compiled by Bloomberg show.

Implied volatility on one-month dollar-yen options fell for a fifth straight day, dropping to 20.40 percent, indicating investors see less price fluctuation in the currency pair next month. The index jumped to 41.79 percent on Oct. 24, the highest level since 1995, when Bloomberg started to compile the data. A drop in volatility reduces the risk of the carry trade by making profits easier to predict.

New Zealand will cut income taxes by NZ$4.4 billion ($2.4 billion) and boost construction to help the economy out of recession, Governor-General Anand Satyanand said today.

In an NBC television interview on Dec. 7, Obama reiterated his commitment to the biggest investments in the nation’s infrastructure since the 1950s. The U.S. president-elect takes office Jan. 20. The European Union proposed a 200 billion euro ($258 billion) stimulus package last month.

U.S. Automakers

Congressional lawmakers sent President Bush a draft proposal to offer $15 billion in loans to U.S. automakers General Motors Corp., Chrysler LLC. Ford Motor Co. said it won’t seek short-term bridge loans. The rescue plan, which will help the firms survive at least until March, would require the president to appoint a person or board to oversee restructuring of the auto industry. The legislation is likely to be passed and signed into law this week, House Financial Services Committee Chairman Barney Frank said yesterday.

“Optimism over an agreement on a bailout for U.S. car companies is supporting global stock gains,” Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former Bank of Japan currency trader, wrote in a research note today. “This may force the yen lower.”

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net