By Kim-Mai Cutler Oct. 16 (Bloomberg) -- The yen declined against the euro and the dollar as U.S. stock-index futures rose, prompting investors to resume purchases of higher-yielding assets funded by low-cost loans in Japan. Japan's yen reversed gains from near a three-year high versus the euro as futures on the Standard & Poor's 500 Index advanced following its biggest plunge since the 1987 stock market crash. The dollar remained higher versus the yen after the Labor Department reported a drop in initial jobless claims. ``The yen's very closely following global equities,'' said Lee Hardman, a London-based currency strategist for Bank of Tokyo-Mitsubishi. ``The moves we've seen in the yen over the last month have been extreme, and in the near term there is a potential for the currency to weaken.'' The yen dropped 1.2 percent to 136.53 per euro at 9:06 a.m. in New York, from 134.93 yesterday. It touched 133.38, near the strongest since June 2005. Japan's currency declined 1.2 percent to 101.118 per dollar from 99.96. The dollar traded at $1.3494 per euro, compared with $1.3499. It reached $1.3259 on Oct. 10, the strongest since March 2007. The yen dropped 8.3 percent to 10.17 against the South African rand and 4.8 percent to 69.31 versus the Australian dollar on speculation a rebound in stocks will revive carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent benchmark rate compares with 3.75 percent in Europe, 6 percent in Australia and 7.5 percent in New Zealand. S&P 500 Futures Japan's currency fell against the euro as S&P 500 futures expiring in December added 2.4 percent. The S&P 500 lost 9 percent yesterday. The yen has gained 5.4 percent against the dollar and 9.5 percent against the euro this quarter as global credit market losses led investors to unwind carry trades and buy Japan's currency to repay loans. The dollar rose to the highest level versus the euro since March 2007 on Oct. 10, partly as banks' reluctance to lend to each other spurred a surge in demand for U.S. currency funding in global money markets. The U.S. Treasury announced on Oct. 14 a plan to inject $250 billion into financial institutions, a day after European governments committed $1.8 trillion to guarantee loans and invest in lenders. The South Korean won fell 9.7 percent to 1,372 per dollar after S&P said it may cut the credit ratings of Kookmin Bank and six other Korean financial companies on concern they will have difficulty refinancing maturing debts. That's the biggest drop since South Korea was bailed out by the International Monetary Fund in December 1997. Jobless Claims Initial jobless claims declined to 461,000 in the week that ended Oct. 11, from 477,000 the prior week, the Labor Department said today in Washington. The median forecast of 39 economists surveyed by Bloomberg News was for a drop to 470,000 from a previously reported 478,000. International demand for long-term U.S. financial assets in August grew as investors sought Treasuries and shunned debt issued by Fannie Mae, Freddie Mac and other agencies. Total net purchases of long-term equities, notes and bonds rose to a net $14 billion from $8.6 billion the previous month, the Treasury Department said today in Washington. Including short-term securities such as Treasury bills and non-market trades such as stock swaps, foreigners sold a net $400 million, compared with net sales of $33.6 billion a month earlier. To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

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