By Daniel Kruger and Ye Xie Nov. 4 (Bloomberg) -- The dollar fell the most against the euro since the 15-nation currency's 1999 debut as the thaw in money markets reduced demand for the safety of U.S. assets. Brazil's real and South Africa's rand advanced versus the dollar on revived investor interest in emerging markets. The yen dropped against the dollar, the euro, the Australian dollar and New Zealand's currency as a global rally in stocks encouraged investors to buy higher-yielding assets financed by low-coast loans in Japan's currency. ``It's a broad setback for the dollar,'' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. ``We do see some signs of tension subsiding a bit. This correction phase could last weeks.'' The dollar fell 2.7 percent to $1.2994 per euro at 11:32 a.m. in New York, from $1.2643 yesterday. The euro climbed 3.9 percent to 130.17 yen from 125.33. The yen fell 1 percent to 100.14 per dollar from 99.12. The London interbank offered rate, or Libor, that banks charge each other for one-month loans in dollars slid for a 17th day as central-bank cash injections and interest-rate cuts worldwide showed signs of reviving lending. The rate dropped 0.18 percentage point to 2.18 percent, the lowest level since November 2004, according to the British Bankers' Association. ``It comes back to what's going on in money markets and credit markets,'' said Jens Nordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``Risk premiums embedded in risky assets overall are very, very elevated. Any kind of stability is going to make those risk premiums come down.'' Stocks Rally U.S. stocks gained in an Election Day rally. The Standard & Poor's 500 Index rose above 1,000 for the first time since Oct. 14, increasing 3.7 percent. The MSCI World Index of stocks for 23 developed countries added 1.2 percent, its sixth consecutive gain, the longest run of advances since July. Australia's dollar rose 3.1 percent to 69.74 U.S. cents and the New Zealand currency increased 3 percent to 60.88 on speculation revived bank lending will boost demand for the countries' assets. The Aussie fell earlier as much as 2.4 percent to 66.03 U.S. cents after the Reserve Bank lowered the cash rate by 0.75 percentage point from 6 percent. The pound dropped 1.3 percent to 80.93 pence per euro as a report showed Britain's construction industry contracted in October at the fastest pace in more than a decade. The Bank of England will cut the main interest rate by a half-percentage point to 4 percent on Nov. 6, according to the median forecast of 60 economists surveyed by Bloomberg News. Weaker Yen The yen fell 4.1 percent to 69.81 against the Australian dollar and 4 percent to 60.97 versus New Zealand's currency on speculation stock gains will encourage carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.3 percent compares with 5.25 percent in Australia and 6.5 percent in New Zealand. In a sign of renewed demand for assets in developing nations, the rand rose 3.8 percent to 9.6750 per dollar, while the real gained 4 percent to 2.0967 versus the dollar. The European Central Bank will cut its main refinancing rate by a half-percentage point to 3.25 percent on Nov. 6, according to the median forecast of 54 economists surveyed by Bloomberg News. The economy of the countries that use the currency probably entered a recession this year and will stagnate in 2009, the European Commission said yesterday. European manufacturing contracted at a record pace in October. ``The trend is for the euro to weaken,'' said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan's second-largest publicly traded lender. ``Recession has reared its head in Europe, and that's fairly negative for sentiment.'' Fed Rate The Federal Reserve reduced its target rate for overnight bank loans by a half-percentage point to 1 percent on Oct. 29. Futures on the Chicago Board of Trade show a 69 percent chance policy makers will cut the rate to 0.5 percent next month. The dollar's 20 percent gain against the currencies of six trading partners since mid-July is hurting the profit outlook of MasterCard Inc., the world's second-biggest credit-card company. Chief Executive Officer Robert Selander said a goal of 20 percent to 30 percent net income growth is in jeopardy after factoring in the effects of a stronger U.S. dollar. 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, reached 87.88 on Oct. 28, the highest level since April 2006. It fell 2 percent today to 84.63, compared with a low of 71.31 on July 15. To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

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