Dollar Holds Drop Versus Euro on Prospects Stocks to Extend Rally in Asia

By Masaki Kondo and Kristine Aquino - Nov 29, 2011 6:50 AM GMT+0700

The dollar held a decline from yesterday against the euro on prospects Asian stocks will extend a global rally of shares, sapping demand for the U.S. currency as a haven.

Fitch Ratings cut the outlook for its U.S. credit ranking to negative from stable while maintaining its top AAA grade. Europe’s common currency was 0.6 percent from a two-week high versus the yen as European financial officials meet this week amid optimism leaders are closer to stemming the region’s debt crisis. Italy and Belgium are due to sell bonds today.

“In a risk-on environment, the U.S. dollar and the yen are two currencies that are going to weaken,” said Thomas Averill, a director at the currency and interest-rate risk management company Rochford Capital in Sydney. “We’re just seeing short- covering in other pairs” involving so-called risk currencies. A short position is a bet a currency will weaken.

The dollar traded at $1.3324 per euro as of 8:24 a.m. in Tokyo from $1.3320 in New York yesterday when it fell 0.6 percent. The greenback fetched 78.01 yen from 77.98. The 17- nation euro was little changed at 103.94 after touching 104.52 yesterday, the strongest level since Nov. 15.

The Standard & Poor’s 500 Index of U.S. shares rose for the first time in eight days yesterday, jumping 2.9 percent.

Euro-area finance ministers convene in Brussels this week to follow up discussions during a Group-of-20 meeting earlier this month as governments try to regain financial markets’ confidence.

Italian, Belgian Bonds

Italy will sell 8 billion euros ($10.7 billion) of bonds maturing in 2014, 2020 and 2022. Belgium is scheduled to offer 1.4 billion euros of bills today.

Fitch’s outlook reflects “declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path will be forthcoming,” making the probability of a downgrade greater than 50 percent over two years, the company said yesterday in a statement.

S&P and Moody’s Investors Service said Nov. 21 that the inability of Congress’s so-called supercommittee to reach an agreement didn’t merit downgrades because the inaction will trigger $1.2 trillion in automatic spending cuts.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.