By Kim-Mai Cutler Oct. 17 (Bloomberg) -- The yen advanced against the dollar and the euro on concern the credit crisis may cause the global economy to fall into a recession, spurring investors to sell higher-yielding assets funded in Japan. The yen gained against 15 of the 16 most-active currencies before a government report today that economists forecast will show U.S. builders began work in September on the fewest homes in 17 years, adding to signs of a slowdown in the world's largest economy. ``It's still very early to see whether these bank-rescue packages will be sufficient, so we still have a defensive position to buy yen,'' said Michael Metcalfe, head of macro strategy at State Street Global Markets in London. ``Risk appetite is still the principal driver.'' The yen rose 0.7 percent to 100.77 against the dollar by 10:42 a.m. in London, from 101.57 late in New York yesterday, paring the week's drop to 0.1 percent. The dollar rose 0.2 percent to $1.3434 per euro and was 0.1 percent lower for the week. The euro fell 0.95 percent to 135.43 against the yen. U.S. housing starts declined to an annual rate of 872,000 homes in September, the fewest since January 1991, from 895,000 in August, according to a Bloomberg News survey of economists. The Commerce Department will release the report at 8:30 a.m. in Washington. The U.S. currency also dropped against the yen and the Swiss franc as traders added to bets on a Federal Reserve interest-rate cut. Futures traded on the Chicago Board of Trade show a 46 percent chance the Fed will lower its 1.5 percent target rate for overnight bank loans by a half-percentage point to 1 percent at its Oct. 29 meeting. Traders saw no chance of a cut of that magnitude a week ago. The odds of a quarter-point reduction are 54 percent. To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

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