By Candice Zachariahs Oct. 14 (Bloomberg) -- The Australian dollar soared, posting its biggest two-day gains against the greenback and the yen, after governments worldwide announced measures to stabilize financial systems. New Zealand's currency also rose. The currencies, favorites for so-called carry trades, advanced after U.S. stocks rallied the most since the 1930s on a government plan to buy stakes in banks. France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee loans and invest in lenders. ``The market's been cheered by all the colossal plans announced since the weekend,'' said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. ``How long the recovery is going to last will depend crucially on short-term lending costs. Tentatively, the action plans seem to have helped alleviate some of the money market pressures.'' The Australian dollar jumped 5.3 percent to 70.77 U.S. cents as of 2:06 p.m. in Sydney, from 67.24 cents late in Asian trading yesterday. That extended its two-day advance to 7.3 percent. The currency surged 7.5 percent to 72.61 yen, for a two-day gain of 11.2 percent. New Zealand's dollar gained 2.6 percent to 62.02 U.S. cents from 60.65 cents late in Asia yesterday. It advanced 4.4 percent to 63.61 yen. Bush Plan The currencies rose as U.S. stocks staged the biggest rally in seven decades and the Bush administration prepared to announce plans to rescue frozen credit markets. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, dropped from a record to 54.99 yesterday. Stocks in Australia and New Zealand soared on reports the U.S. government will spend about $125 billion for stakes in nine major banks, according to people briefed on the matter. The institutions include Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. ``The Australian dollar is oversold,'' said Sonja Marten, a currency strategist at Dresdner Kleinwort in London, during an interview on Bloomberg TV yesterday. ``If risk aversion retreats the currency might appreciate again.'' The Australian currency has lost 27 percent over the past three months, and New Zealand's is down 18.8 percent. Australia's dollar rose the most since it was freely traded in 1983 versus the greenback on Oct. 13 as traders welcomed coordinated rate cuts by central banks worldwide and efforts by governments to unlock credit markets. Rudd Guarantees Prime Minister Kevin Rudd said today his government will spend A$10.4 billion ($7.3 billion) to boost the economy through programs for the elderly, families and first home buyers as the global financial turmoil slows domestic growth. The package is ``a sizeable injection into the domestic economy,'' wrote Sydney-based Joshua Williamson, a senior strategist at TD Securities Ltd. in a research note today. ``This initiative should place some further support under the Australian dollar.'' Prime Minister Kevin Rudd on Oct. 12 said his government will guarantee all deposits with financial institutions for the next three years to bolster confidence in the banking system. The government will also guarantee all ``term wholesale funding'' by Australian banks operating in international credit markets. Australian business confidence held close to the lowest level in seven years last month, according to a National Australia Bank Ltd. survey of more than 400 companies released today. Interest Rates Benchmark interest rates are 6 percent in Australia and 7.5 percent in New Zealand, compared with 0.5 percent in Japan and 1.5 percent in the U.S., luring investors to buy the South Pacific nations' assets using loans in lower-cost currencies. The risk in such carry trades is that exchange-rate fluctuations may erase profits. Australian government bonds rose for the first day in four. The yield on the benchmark 10-year note fell 3 basis points to 5.521 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 advanced 0.202, or A$2.02 per A$1,000 face amount, to 97.871. A basis point is 0.01 percentage point. New Zealand's two-year swap rate, a fixed payment made to receive floating rates, rose to 6.485 percent today from 6.470 yesterday. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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