Euro Rises as Stocks Gain, Central Banks Seek to Buoy Markets

By Bo Nielsen

Dec. 2 (Bloomberg) -- The euro rose against the dollar and the yen as stocks advanced and central banks around the world increased measures to stem the economic slowdown, reducing the allure of the two haven currencies.

The euro gained as the Bank of Japan said it will begin accepting BBB rated corporate debt and the Reserve Bank of Australia cut its key interest rate more than expected to the lowest level since 2002. The yen fell against the New Zealand dollar as U.S. stock futures rose, suggesting markets will rebound from the biggest rout since mid-October yesterday.

“The euro strengthens in line with equity markets rebounding from the lows,” said Audrey Childe-Freeman, senior currency analyst with Brown Brothers Harriman & Co. in London. “More stimulus may bring relief to the equity markets.”

The currency shared by 15 European nations advanced to $1.2682 at 8:05 a.m. in New York, from $1.2610 yesterday. The euro bought 118.28 yen from 117.51 yen. Against the dollar, the yen was at 93.25 from 93.19.

The euro fell earlier against the yen and the dollar after the Standard & Poor’s 500 Index’s 8.9 percent decline yesterday. The Nikkei 225 index closed down 6.4 percent today, while Europe’s Stoxx 600 advanced 0.6 percent, reversing an earlier drop of as much as 2.3 percent. Futures on the S&P rose 1.9 percent.

Federal Reserve Chairman Ben S. Bernanke said yesterday in Austin, Texas, he may use less conventional policies, such as buying Treasury securities, to revive the economy, because his room to lower the main U.S. rate from the current 1 percent level is “obviously limited.”

Australian Rate Cut

The Australian central bank cut its key cash rate to 4.25 percent from 5.25 percent, more than median estimate of a 0.75 percent cut in a Bloomberg survey. The RBA said its benchmark rate is now at a level that will stimulate growth.

Interest rates will be lowered 1.5 percentage points to 5 percent in New Zealand, by 1 percentage point to 2 percent in the U.K. and to 2.75 percent from 3.25 percent in the euro region this week as central banks move to stem the economic slowdown, according to Bloomberg surveys.

The pound weakened against the euro after former Bank of England policy maker Willem Buiter said that the central bank will weigh the risk of “a rout” in the British currency as it cuts its interest rate to an all-time low this week.

“The deterioration of sterling we’ve seen so far has been extremely welcome from the British point of view,” Buiter said in a speech to the Council of Mortgage Lenders annual conference in London today. “The risk is that it could become a rout.”

Five-Year High

The yen rose to a five-year high versus the dollar earlier as investors reversed so-called carry trades. In such transactions, traders borrow funds in a country with low interest rates to buy higher-yielding ones elsewhere.

The Bank of Japan kept its benchmark rate at 0.3 percent today following an October cut in the overnight lending rate from 0.5 percent and said it will accept lower grade corporate bonds as collateral for loans to banks to unlock credit markets.

The yen’s advance is hurting exporters, although the strength in the currency isn’t a bad thing in itself, Economic and Fiscal Policy Minister Kaoru Yosano said today.

“The economy is struggling under the weight of the strong currency and global slowdown and the Japanese authorities will not want to see further significant strength” in the yen, Adrian Schmidt, a London-based senior foreign exchange strategist at the Royal Bank of Scotland Plc, wrote in a note. RBS is the fourth-biggest currency trader. “The yen is expensive here,” he wrote.

The Institute for Supply Management’s U.S. Non Manufacturing index will fall to 42 in November, from 44.4 the prior month, a report will show tomorrow according to the median estimate in a Bloomberg survey.

The factory index fell to 36.2 the same month, the lowest level since 1982, the Tempe, Arizona-based group reported yesterday. A reading of 50 is the dividing line between expansion and contraction. Similar gauges for the euro zone and the U.K. dropped to records.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net