By Anchalee Worrachate and Ron Harui Oct. 15 (Bloomberg) -- The yen rose for the first time in five days against the dollar on speculation the U.S. Treasury's $250 billion investment in financial institutions won't prevent a recession in the world's biggest economy. Japan's currency also gained versus the euro and the Australian dollar as U.S. and Asian stocks fell, damping investors' confidence in higher-yielding assets. The dollar traded near a one-week low against the euro before data that may show U.S. retail sales declined at a faster pace as job losses and a housing slump curb spending. Federal Reserve Bank of San Francisco President Janet Yellen said yesterday the U.S. economy ``appears to be'' in a recession. ``The market has stabilized, and people are shifting their focus to fundamentals, which are not pointing to any growth whatsoever in the high-yielding block,'' said Geoffrey Yu, a London-based strategist at UBS AG, the world's second-biggest currency trader. ``With that and the credit situation combined, it's hard to see too much of yen selling as demand for carry trades is nearly non-existent at the moment.'' The yen climbed to 101.43 per dollar as of 6:56 a.m. in New York from 102.07 yesterday. The currency rose to 138.70 per euro from 139.04. The dollar fell against the euro to $1.3666, after trading as low as $1.3769 yesterday, the weakest since Oct. 9. Against the yen, South Korea's won slipped 3.3 percent to 12.23, Norway's krone fell 0.9 percent to 16.1305 yen and Mexico's peso lost 1.4 percent to 8.148. Carry Trades Wane In carry trades, investors borrow in currencies with low interest rates and transfer the funds to nations with higher rates. Japan's target rate of 0.5 percent is the lowest among major economies. The yen pared gains against the dollar after money-market rates fell for a third day, fueling speculation that the global bailouts are starting to unfreeze the credit markets. The London interbank offered rate, or Libor, that banks charge each other for three-month dollar loans dropped 9 basis points to 4.55 percent today, the British Bankers' Association said. Japan's currency also gained as volatility implied by one- month dollar-yen options climbed to 22.06 percent, from 20.54 percent yesterday, indicating a larger risk of exchange-rate fluctuations that may erode profits on carry trades. It reached 32.175 percent on Oct. 10, the highest since Bloomberg began compiling data in December 1995. Treasury Secretary Henry Paulson urged banks receiving capital injections yesterday to use funds from the government to spur economic growth. People familiar with the U.S. plan said nine financial institutions, including Citigroup Inc. and Goldman Sachs Group Inc., will get $125 billion within days. European nations committed $1.8 trillion on Oct. 13 to guarantee loans and invest in lenders. Repatriation The yen snapped two days of losses versus the euro as the MSCI Asia-Pacific Index of regional shares slipped 1.3 percent after the Standard & Poor's 500 Index lost 0.5 percent yesterday. The yen climbed 8 percent versus the euro this month as mounting credit-market losses encouraged investors to shed higher-yielding assets funded by low-cost loans in Japan. The yen was also underpinned by repatriation of funds by Japanese investors, said Derek Halpenny, head of global currency strategy in London at Bank of Tokyo-Mitsubishi Ltd. ``Japanese households' appetite for risk was already diminishing before the turmoil last week materialized, with new repatriation of investment trusts in September,'' Halpenny said. ``The actual repatriation of funds is a rare occurrence and underlines the shift taking place in regard to risk.'' The dollar yesterday reached a one-week high of 103.07 yen, before retreating on concern U.S. government reports will show that the economic slowdown is deepening. U.S. Recession U.S. retail sales fell 0.7 percent in September following a 0.3 percent drop the prior month, according to the median estimate of economists surveyed by Bloomberg News. The Commerce Department releases the data at 8:30 a.m. in Washington. Figures on Oct. 17 may show housing starts fell to a 17-year low. ``Concerns over a U.S. recession may now intensify, as those over a financial crisis have abated for the time being,'' said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader. ``These worries may lead to dollar selling, yen buying.'' The common European currency may drop 13 percent versus the yen by the end of the year as global credit markets will remain depressed even after U.S. and European officials made as much as $3 trillion available to unclog lending, Citigroup Global Markets Inc. said. The euro may reach 120 yen as investors favor the relative safety of Japan's currency, reinforcing technical charts that signal the euro is vulnerable, said Tom Fitzpatrick, global currency head of strategy at Citigroup Global Markets in New York. Money Markets ``You can't have the amount of fear we've just had in the last three weeks and think people are just going to go roaring back to put on risk trades,'' said Fitzpatrick. ``Equities have got hit because of the problem. They in themselves haven't been the problem. The problem has been credit.'' The Bank of Japan said yesterday it will offer lenders an unlimited amount of dollars, one day after the Fed said the European Central Bank, Bank of England and Swiss National Bank would offer European banks as many dollars as they want at fixed interest rates against ``appropriate collateral.'' To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net;

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