By Ron Harui and Stanley White Oct. 9 (Bloomberg) -- The yen fell against the dollar for the first time this month as a flurry of central bank interest- rate cuts helped arrest a slump in global equities, bolstering confidence in higher-yielding assets. Japan's currency declined versus the euro, the Australian dollar and the New Zealand dollar after the U.S., Europe and South Korea lowered borrowing costs to counter the worst financial crisis since the Great Depression. Group-of-Seven ministers meeting tomorrow may say the yen's 5 percent advance this week against the greenback has been too rapid. ``They've done something to address the economic fallout from this crisis in a meaningful way,'' said Tony Morriss, a senior currency strategist in Sydney at Australia & New Zealand Banking Group, Australia's fourth-largest lender. ``This definitely helps address issues to do with confidence. We're seeing the yen weaken.'' The yen dropped 1.7 percent to 100.80 per dollar as of 1:55 p.m. in Tokyo from 99.14 late yesterday in New York. Japan's currency declined to 137.79 versus the euro from 135.39. The euro bought $1.3665 from $1.3654. Against the Australian dollar, the yen declined 6.1 percent to 69.78 from 65.52 late yesterday in Asia. It also fell 4 percent to 61.51 per New Zealand dollar from 59.07. South Korea's won weakened to below 1,400 per dollar for the first time since 1998, before trading at 1,389.50 from 1,395.00. The Malaysian ringgit declined 0.1 percent to 3.5030 and China's yuan weakened 0.1 percent to 6.8250. `Comfort Zone' Finance ministers and central bankers from the G-7 will meet tomorrow in Washington to discuss the financial crisis, which has already led to bank bailouts in most of the member nations. The group comprises Canada, France, Germany, Italy, the U.K., the U.S. and Japan. ``People will be somewhat reluctant to buy the yen from here,'' said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly traded bank. ``The yen's gains against many currencies are starting to breach the comfort zone, so the G-7 may want to stabilize the currency.'' The MSCI Asia-Pacific Index of regional stocks rose 1.5 percent today, snapping a five-day, 16 percent slide. Investors dumped stocks on concern the global economy is headed for a recession as $592 billion of losses stemming from defaults on U.S. subprime mortgages cause credit markets to seize up. Carry Trades The yen surged 21 percent versus the Australian dollar, 16 percent against New Zealand's currency and 8 percent against the euro this month. In carry trades investors get funds in nations such as Japan that have low borrowing costs and buy assets where returns are higher. Japan's benchmark rate is 0.5 percent, compared with 6 percent in Australia and 7.5 percent in New Zealand. Implied volatility on one-month dollar-yen options, a measure of expectations for future currency moves, fell to 22.37 percent from 25.05 percent yesterday, when it reached 26.42 percent, the highest since Oct. 20, 1998. Lower volatility may encourage carry trades as it indicates a smaller risk of exchange-rate fluctuations. The Federal Reserve reduced its target lending rate by a half-percentage point to 1.5 percent yesterday, while the European Central Bank and counterparts from the U.K., Canada, Sweden and Switzerland also announced cuts. Central banks in China, Hong Kong and Taiwan lowered their key rates and the Bank of Korea cut its benchmark for the first time in four years. Interest Rates ``You would be looking to buy dollars,'' said Kathy Lien, director of research at GFT Forex in New York, in a Bloomberg Television interview. ``Two to three months down the line the ECB will still be cutting interest rates while the Fed won't. The ECB has a lot more room to cut interest rates than the U.S.'' The dollar gained on speculation financial institutions will seek to buy more of the currency in the foreign-exchange market due to the reluctance of banks to lend to each other. Singapore's three-month interbank offered rate for dollar loans, known as Sibor, rose 0.19 percentage points today to 4.51 percent, the highest since Jan. 8. ``External credit pressures remain elevated,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane, Australia. ``Part of the reason why the dollar is going up is because of elevated funding pressures.'' The U.S. currency climbed to $1.7171 against the British pound, the strongest since December 2005, before trading at $1.7266. The greenback reached C$1.1294 versus Canada's dollar, the highest since April 2007. Technical indicators shows the pound may fall to $1.7050 in coming days, according to Pak Lai Ng, an analyst at Forecast Pte Ltd. in Singapore. Sterling is poised to extend this month's 2.9 percent loss judging by the weekly relative strength index, Ng said. The currency is also likely to fall as stochastic and moving average convergence/divergence charts are showing sell signals, he said. Support at $1.7050 is near the pound's November 2005 low, he said. To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.

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