Euro Drops to 10-Year Low Against Yen

By Shiyin Chen and Mariko Ishikawa - Dec 29, 2011 1:02 PM GMT+0700

The euro weakened to a decade low against the yen and bond risk rose on concern Europe’s debt crisis will slow the global economy. U.S. equity-index futures climbed before data on home sales and initial jobless claims.

The 17-nation euro weakened as much as 0.5 percent versus the yen before trading at 100.53 yen as of 3 p.m. in Tokyo. The Markit iTraxx Japan index tracking debt-default risk added three basis points to 187. The MSCI Asia Pacific Index pared earlier losses of as much as 0.8 percent, while Standard & Poor’s 500 Index futures rose 0.4 percent after the gauge sank 1.3 percent yesterday. Gold futures declined for a sixth day.

Italy will sell as much as 8.5 billion euros ($11 billion) in notes due from 2014 to 2022, a day after borrowing costs fell at a bill auction. The European Central Bank said yesterday its balance sheet soared to a record 2.73 trillion euros after lending to banks last week. Data today may show U.S. pending sales of previously owned homes rose for a second month, while initial jobless claims increased.

“The European problem is going to continue to cause spooks in the market and some spikes in risk aversion,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “The moves are exaggerated by the lack of liquidity.”

The euro slid for a fifth day against the yen and earlier reached 100.36, the weakest level since June 2001. The 17-nation currency slipped 0.1 percent to $1.2928 after earlier touching $1.2888, the least since Jan. 10.

ECB Lending

The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending. So far, banks are parking the money back at the ECB. Overnight deposits at the central bank increased to an all-time high of 452 billion euros yesterday.

“The ECB, for the foreseeable future, will not drain liquidity once per month as it always has done,” said Robert Rennie, Sydney-based chief currency strategist at Westpac Banking Corp., Australia’s second-largest lender. “It gives you greater confidence that this is more formal quantitative easing. Both on an outright and a cross basis, the risks still do lie to the downside for the euro.”

Italian 10-year yields were little changed at 7 percent yesterday after the Treasury sold 9 billion euros of 179-day bills at a rate of 3.251 percent, down from 6.504 percent at the previous auction on Nov. 25.

German Chancellor Angela Merkel and French President Nicolas Sarkozy may meet on Jan. 9 in Berlin to discuss the debt crisis, the Wall Street Journal reported, citing an unidentified European Union official familiar with the situation.

Taiwan, Singapore

Taiwan’s dollar was little changed at NT$30.286 against its U.S. counterpart before the central bank decides on interest rates today. Eleven of the 15 economists surveyed by Bloomberg News forecast that policy makers will keep borrowing costs unchanged. Four predict a cut.

The Singapore dollar declined 0.6 percent to S$1.3026 per dollar and the Malaysian ringgit fell 0.4 percent to 3.1763 per dollar. Singapore’s gross domestic product rose 4 percent in the fourth quarter after increasing 6.1 percent in the three months through September, the government will say on Jan. 3, according to a Bloomberg survey of economists.

The cost of insuring corporate bonds against non-payment rose in Japan, with the Markit iTraxx Japan index headed for its highest close since Dec. 20, according to data provider CMA. The Markit iTraxx Australia index rose one basis point to 181.5, Westpac Banking Corp. prices show.

Lynas, Molycorp

MSCI’s Asia Pacific Index was little changed after having slumped 18 percent this year. The index’s 2011 drop compares (MXAP) with a 13 percent loss in the Stoxx Europe 600 Index and a 0.6 percent fall in the S&P 500. Japan’s Nikkei 225 Stock Average slid 0.3 percent, Australia’s S&P/ASX 200 Index dipped 0.4 percent and Hong Kong’s Hang Seng Index sank 0.8 percent.

A gauge of raw material producers posted the largest drop among the MSCI regional index’s 10 industry groups. Lynas Corp. (LYC), an Australian rare earths developer, slid 5.3 percent after the Chinese government said on Dec. 27 it will keep 2012 export quotas of rare earth virtually unchanged. That, coupled with planned increases in production by Lynas and Greenwood Village, Colorado-based Molycorp Inc., “will put additional downward pressure on rare-earth prices,” JPMorgan Chase & Co. wrote in a note. Molycorp sank 14 percent in New York yesterday.

Treasury 10-year yields were little changed at 1.92 percent before today’s economic reports. Initial jobless claims may have climbed to 375,000 last week after falling to the lowest since April 2008 in the previous period, according to economists surveyed by Bloomberg before today’s report. Separate figures from the National Association of Realtors today may say pending sales of previously owned homes rose 1.5 percent in November after a 10 percent jump the previous month.

Gold, Oil

Gold for February delivery fell as much as 0.8 percent to $1,551 an ounce before trading at $1,555.30. It is set for the longest losing streak since March 2009. Silver for immediate delivery slid 0.7 percent to $26.9125 an ounce, a fourth day of losses.

Oil rose 0.2 percent to $99.56 a barrel in New York, following a 2 percent slide yesterday. U.S. inventories increased 9.57 million barrels last week, according to the industry-funded American Petroleum Institute. An Energy Department report today was forecast to show supplies fell 2.5 million in a Bloomberg News survey.

To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Nick Gentle at ngentle2@bloomberg.net