By Ye Xie Oct. 23 (Bloomberg) -- The yen traded near the highest level against the euro since 2002 as global economic turmoil led investors to sell higher-yielding assets and pay back low-cost loans in Japan's currency. Brazil's real and Mexico's peso rallied after central banks bought the currencies to stem losses. Russia's ruble dropped to the lowest versus the dollar since July 2006 as Standard & Poor's cut the country's debt rating outlook to negative. ``There's a fair amount of fear in the markets,'' said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. ``The yen is the safe haven.'' The yen advanced 0.9 percent to 124.45 per euro at 1:14 p.m. in New York, from 125.60 yesterday. It touched 123.43, the strongest level since December 2002. Japan's currency rose 0.6 percent to 97.05 per dollar from 97.05. The dollar appreciated 0.4 percent to $1.2807 per euro from $1.2855. It reached $1.2728, the strongest level since November 2006. Sterling slid to the lowest level against the dollar in more than five years after the Office for National Statistics said today that retail sales in the U.K. declined 0.4 percent last month after rising 1.1 percent in August. The pound dropped 1.1 percent to $1.6087 after touching $1.6042, the lowest level since September 2003. It slid yesterday as much as 3.4 percent, the biggest intraday decline since September 1992, when investor George Soros drove the currency out of Europe's system of linked exchange rates. Falling Ruble The ruble fell as much as 0.5 percent to 27.0664 per dollar, the weakest level in more than two years. S&P cut the outlook for Russia's BBB+ credit rating to ``negative'' from ``stable,'' saying the country's rating could be downgraded if the cost of the government's bank rescue increases. Brazil's real rose, erasing a decline of as much as 5.8 percent, as the central bank bought the currency to stem a two- month rout and said it's prepared to sell as much as $50 billion of currency swaps. The real gained 3.6 percent to 2.3930 per dollar. The currency has lost 21 percent in the past month. The peso rebounded as the Mexican central bank bought $1 billion worth of pesos at an auction at an average price of 13.1877 pesos. The currency gained 1.5 percent to 13.6692 versus the dollar after falling as much as 3 percent. The yen gained 2.8 percent to 63.85 against the Australian dollar and 1.8 percent to 156.10 versus the pound on speculation investors will unwind carry trades, in which they get funds in a country with low borrowing and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 4.5 percent in the U.K. and 6 percent in Australia. Stock Rally Fades The Standard & Poor's 500 Index fell 1.4 percent after gaining as much as 2.9 percent. The Dow Jones Industrial Average lost 1 percent. Japan's currency may strengthen to 90 per U.S. dollar by March 2009 as investors dump higher-yielding assets funded in Japan and bring their cash home, Barclays Capital said in a research note today. The yen has appreciated 15 percent against the dollar this year, the only gain among the 16 most actively traded currencies tracked by Bloomberg. U.S. foreclosure filings increased 71 percent in the third quarter from a year earlier to the highest on record as home prices fell and stricter mortgage standards made it harder for homeowners to sell or refinance, RealtyTrac said. A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the quarter, the most since records began in January 2005, the Irvine, California-based seller of default data said in a statement today. Euro's Decline The euro has lost 20 percent versus the dollar since touching the all-time high of $1.6038 on July 15. The European economy may be headed for a recession that could last two to three years, Finland's Finance Minister Jyrki Katainen said yesterday in an interview on Bloomberg Television. Net selling of European stocks among institutional investors has been three times higher than average over the past year, and foreign investors account for most of the sales, according to Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration. ``One thing that stands out this week is huge European equity market outflows,'' said Shankar. ``The net selling is adding to pressure on the euro. Growth in the euro zone is deteriorating very fast.'' To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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