By Stanley White Oct. 30 (Bloomberg) -- The dollar and the yen fell as a wave of global interest-rate cuts sparked a rally in Asian stocks, bolstering demand for higher-yielding assets. The greenback slid for a third day against the euro after the Federal Reserve reduced its target lending rate to the lowest in a half-century. The yen dropped to a one-week low versus the European currency on speculation the Bank of Japan will lower borrowing costs when it meets tomorrow. South Korea's won jumped the most in a decade after the Fed extended swap lines to alleviate a shortage of dollars in the nation. ``The significant easing of monetary policy will help the global growth outlook,'' said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. ``We're seeing a major correction of the U.S. dollar and Japanese yen. They were among the key beneficiaries of the flight to quality that's being unwound.'' The dollar fell to $1.3292 per euro, the lowest since Oct. 21, and traded at $1.3196 as of 2:10 p.m. in Tokyo from $1.2963 late yesterday. The yen weakened to 98.35 per dollar from 97.39. The euro gained to 129.80 yen from 126.26 yen. It earlier reached 131.04, the weakest since Oct. 22. The won jumped 14 percent to 1,253.55 per dollar, the biggest advance since January 1998. The currency two days ago sank to a decade-low of 1,495 as mounting risk aversion prompted investors to dump emerging-market assets. The ICE's Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and the Swedish krona, fell 2 percent, extending the biggest decline since October 1998. It touched the highest level since April 2006 on Oct. 28. Stocks Rally The MSCI Asia-Pacific Index of regional shares rose 7.7 percent for a third day of gains. Japan's Nikkei 225 Stock Average climbed 7.6 percent and South Korea's Kospi index surged 12 percent, the biggest gain since at least 1980. U.S. policy makers reduced the fed funds target by a half- percentage point to 1 percent yesterday, matching a level reached in June 2003 and before that during the Dwight Eisenhower administration in the late 1950s. Gross domestic product shrank by 0.5 percent in the third quarter for its biggest decline since the 2001 recession, data due at 8:30 a.m. today in Washington will show, according to a Bloomberg News survey of economists. Rate Cuts ``The Fed is doing what it can given a weakening U.S. economy,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. based in Tokyo. ``This puts the focus on the interest-rate differential, and that will force the dollar to go lower.'' The U.S. central bank has cut its benchmark rate from 5.25 percent in the past 13 months and created six lending programs channeling more than $1 trillion into the financial system to limit the severity of a looming recession. ``The easing bias in the U.S. is going to continue,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. The Australian dollar rose to 68.30 U.S. cents from 66.81 cents late yesterday in New York on speculation a rate cut in China, the world's largest consumer of industrial metals, will boost demand for Australia's exports. The People's Bank of China yesterday reduced its benchmark one-year lending rate to 6.66 percent from 6.93 percent. Taiwan's central bank followed suit today, lowering the discount rate on 10-day loans to banks to 3 percent from 3.25 percent. Yen Selling The yen fell against higher-yielding currencies as Asian stocks gained on speculation monetary officials across the globe can thaw a seizure in credit markets. Against the Australian dollar, the yen fell to 67.13 from 65.04 late yesterday in New York. It also declined to 58.32 per New Zealand dollar from 57.02. Interest rates are 0.5 percent in Japan, 6 percent in Australia and 6.5 percent in New Zealand. The yen also declined as investors speculated that the Bank of Japan will cut borrowing costs tomorrow. The currency slumped the most since 1974 and stocks rallied after the Nikkei newspaper said Oct. 28 that policy makers are leaning toward lowering rates. The Group of Seven industrial nations expressed concern Oct. 27 about the yen's ``excessive volatility'' and Japan's Finance Minister Shoichi Nakagawa said the same day that his government was ready to act if needed to arrest the currency's recent gains. ``Selling orders for the yen are piling up,'' said Mitsuru Sahara, senior currency sales manager at Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly traded lender. ``Stocks are looking strong, and that takes some safe- haven flows away from the yen. A possible BOJ rate cut is also a negative.'' The yen may decline to 99.79 per dollar today, he said. To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Ye Xie in New York at yxie6@

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