Euro Trades Near 5-Week High as Stark Says Limit for Rate Cuts

By Theresa Barraclough and Ron Harui

March 17 (Bloomberg) -- The euro traded near a five-week high against the dollar after a newspaper reported European Central Bank Executive Board member Juergen Stark said there was limited room for further interest-rate cuts.

The 16-nation currency may gain for a fourth day versus the yen on speculation the worst of the banking crisis is over as the European Union considered raising a 25 billion euro ($32.4 billion) limit on aid to member nations. The dollar may weaken for fifth day against the pound on speculation the Federal Reserve will announce additional measures to keep down U.S. funding costs at its two-day policy meeting starting today.

“The euro is getting a lot of support from comments by Stark who said there was limited room for further easing,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s biggest lender by market value. “There’s some nervousness about the FOMC meeting,” which is weighing on the dollar, he said.

Europe’s currency traded at $1.2960 as of 9:20 a.m. in Tokyo, from $1.2968 late yesterday in New York when it rose 0.3 percent. It strengthened 2.2 percent last week, the first weekly advance since early February. The yen traded at 127.51 per euro from 127.32 yesterday when it dropped 0.5 percent. It was at 98.24 per dollar from 98.18.

The yen rose 0.3 percent to 9.9002 against the South African rand. Against the pound, the dollar traded at $1.4063 from $1.4064. The euro was little changed at 92.20 British pence.

The euro climbed past $1.30 yesterday for the first time since Feb. 10 after the Group of 20 finance ministers at a meeting on the weekend told the International Monetary Fund it will have its resources at least doubled to $500 billion.

‘Little More Room’

“We have a little more room” to lower rates, Stark said in a preview of an article to be published in Handelsblatt today. “For me personally, the threshold isn’t far away from the current level,” he said.

Investors maintained bets the ECB will reduce borrowing costs at its next policy meeting on April 2. The yield on the three-month Euribor interest-rate futures due June traded at 1.47 percent, from 1.535 percent a week ago, according to data compiled by Bloomberg.

The dollar was near a one-week low versus the pound after U.S. Treasury Secretary Timothy Geithner and President Barack Obama announced a series of programs yesterday to spur lending to small businesses. As part of the initiative, the Treasury will require the 21 largest banks that get funds from the $700 billion financial rescue to report every month details about their lending to small businesses.

Greater Resources

“The recent G-20 summit endorsed a call for greater IMF resources to help at-risk countries and the U.S. is beginning to move forward with its financial rescue packages,” analysts led by Mansoor Mohi-Uddin, chief currency strategist in Zurich at UBS AG, wrote in a research note yesterday. “The developments are not favorable for the dollar.”

The Fed will keep rates in a range of zero to 0.25 percent when the meeting ends tomorrow, according to a Bloomberg survey. After the Federal Open Market Committee’s previous meeting ended on Jan. 28, policy makers said they were “prepared to purchase longer-term Treasury securities” if it became clear the policy would be “particularly effective” in getting credit flowing.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.