Dollar Declines Against Euro as China PMI, Dubai Boost Stocks

By Lukanyo Mnyanda and Yasuhiko Seki

Dec. 1 (Bloomberg) -- The dollar fell against high-yielding currencies after China’s manufacturing grew at the fastest pace in five years and Dubai said it’s in “constructive” talks with creditors, boosting stocks and paring demand for safety.

The dollar declined for a second day against the euro as the MSCI World Index of stocks jumped. Australia’s dollar rose against the U.S. currency after the South Pacific nation’s central bank raised the benchmark interest rate for a third straight month. The yen fell against all 16 most-traded peers amid speculation policy makers will try to limit its gains even after keeping rates unchanged at an emergency meeting.

“Stock markets are on a strong footing and we should see the euro and other currencies gain against the dollar,” said Roberto Mialich, a senior currency strategist in Milan at UniCredit SpA, Italy’s largest bank. “The dollar doesn’t have significant room for appreciation at the moment.”

The dollar weakened to $1.5069 against the euro as of 9:20 a.m. in London, from $1.5005 yesterday. The U.S. currency lost 1.9 percent versus the euro in November, its fifth consecutive monthly drop, the longest run of declines since December 2004. It climbed to 86.94 yen, from 86.41 yen. Japan’s currency weakened to 131.01 per euro, from 129.64.

Government-controlled Dubai World said it began talks with banks to restructure $26 billion of debt, including liabilities owed by units Nakheel World and Limitless World. The company is seeking to delay payments on less than half its $59 billion of obligations, damping concern that a potential default may set back the global financial system’s recovery from the credit crisis.

Stocks Climb

European stocks rose, following gains in Asian equity markets, with the Dow Jones Stoxx 600 Index climbing 2.1 percent. HSBC Holdings Plc’s purchasing managers’ index for China rose to a seasonally adjusted 55.7 last month, the highest reading since the survey’s first month in April 2004. The government’s PMI, also released today, was at an 18-month high.

The U.S. currency dropped the most against the New Zealand dollar before a report economists said will show manufacturing expanded in the U.S. German retail sales increased in October by more than analysts predicted, a separate report showed today.

The New Zealand dollar climbed 1.3 percent to 72.53 U.S. cents, adding to a 0.7 percent advance yesterday. It jumped 1.8 percent to 63.01 yen. Australia’s currency increased 0.7 percent to 92.26 U.S. cents and rose 1.3 percent to 80.19 yen.

Rate Increase

Reserve Bank of Australia Governor Glenn Stevens increased the overnight cash rate target to 3.75 percent from 3.5 percent, as forecast by 19 of 20 economists surveyed by Bloomberg News.

The Bank of Japan will provide three-month loans to commercial banks at an interest rate of 0.1 percent as it seeks to remedy falling prices and the currency’s surge to a 14-year high against the dollar.

Prime Minister Yukio Hatoyama’s government has stepped up calls on the Bank of Japan to prop up growth after saying on Nov. 20 that the economy was in deflation.

The central bank introduced quantitative easing steps in March 2001 before suspending them in March 2006.

Eisuke Sakakibara, formerly Japan’s top currency official, said today that quantitative easing by the Bank of Japan wouldn’t be effective in reinvigorating the economy.

Such measures would be “better than nothing, but the effectiveness would be very limited because there are no borrowers,” Sakakibara, now an economics professor at Waseda University, said today in an interview with Bloomberg News in Tokyo. “Liquidity in Japan is already abundant.”

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net