By Jamie McGee Nov. 7 (Bloomberg) -- The dollar dropped for the first time in three days against the euro as the U.S. unemployment rate climbed to the highest level since 1994, indicating the financial crisis is taking a sustained toll. The yen fell against the euro, the dollar, the Australian dollar and New Zealand's currency as a rally in global stocks on the prospect of further interest-rate cuts by the Federal Reserve encouraged investors to buy higher-yielding assets financed by low-cost loans in Japan. ``The data was certainly very weak,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``The orthodox interpretation is dollar-negative.'' The dollar depreciated 0.4 percent to $1.2765 per euro at 11:56 a.m. in New York, from $1.2715 yesterday, and was headed for a weekly loss of 0.3 percent. The dollar gained 0.4 percent to 98.12 yen from 97.75. The 15-nation euro increased 0.9 percent to 125.37 yen from 124.29. Canada's dollar was headed for a 3.1 percent weekly gain against the greenback after the government reported that the nation's employers unexpectedly added jobs in October. The loonie rose 1.9 percent to C$1.1755 per U.S. dollar today. The South Korean won advanced 0.2 percent to 1,328.65 per dollar, paring its weekly decline to 2.9 percent, as local stocks rebounded following the Bank of Korea's decision to cut its benchmark rate to 4 percent, the third reduction in a month. Yen Versus Aussie The yen depreciated 2.3 percent to 66.58 against the Aussie and 1.7 percent to 58.29 versus New Zealand's dollar as stock gains boosted carry trades, in which investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's 0.3 percent target lending rate compares with 5.25 percent in Australia and 6.5 percent in New Zealand. ``Equities are popping, so we are seeing risk aversion come off a little,'' said Jonathan Cavenagh, a Sydney-based currency strategist at Westpac Banking Corp. U.S. and European stocks rose on speculation the Fed will cut interest rates in response to unemployment data. The Standard & Poor's 500 Index increased 1.8 percent after dropping more than 5 percent in each of the previous two days. Europe's Dow Jones Stoxx 600 Index added 2 percent. Futures on the Chicago Board of Trade showed a 93 percent chance the Fed will halve its 1 percent target rate for overnight lending between banks at its Dec. 16 meeting, compared with 55 percent odds a week ago. The contract may not be as precise an indicator as in the past as the effective rate, a volume-weighted average of trades between major brokers for overnight funds, approaches zero. U.S. Payrolls U.S. employers eliminated 240,000 jobs last month after shedding 284,000 positions in September, the Labor Department reported today in Washington. The median forecast of 78 economists surveyed by Bloomberg News was for a decline of 200,000 in October. The unemployment rate increased to 6.5 percent from 6.1 percent in the previous month. In a sign the U.S. housing market remains weak, the National Association of Realtors said today in Washington that its index of signed home purchase agreements, or pending home resales, fell 4.6 percent in September. The euro fell against the dollar, yen and pound yesterday after European Central Bank President Jean-Claude Trichet said the economy ``weakened significantly'' and the International Monetary Fund cut growth forecasts for the region. The ECB reduced its main refinancing rate by a half- percentage point to 3.25 percent and Trichet said more reductions may follow. The Bank of England unexpectedly lowered its rate by 1.5 percentage points to 3 percent. ECB Rate The ECB also reduced the benchmark rate by a half- percentage point on Oct. 8, joining the Fed, the Bank of England, the Bank of Canada and the Swiss National Bank in coordinated cuts. Japan will benefit from a strong yen because it will hold down prices for raw materials, said Eisuke Sakakibara, formerly the nation's top currency official, in an interview on Bloomberg Television in Singapore yesterday. ``I still believe a strong yen is in the national interest of Japan, particularly in this situation when raw material prices will increase,'' Sakakibara said. The yen may strengthen to 80 per dollar on the unwinding of trades in which investors get funds in countries with low borrowing costs and buy higher-yielding assets elsewhere, said Sakakibara, who was dubbed ``Mr. Yen'' during his 1997-1999 tenure at the Finance Ministry because of his influence over currency markets. Japan's target rate is the lowest in the industrialized world. The yen's 15 percent increase against the dollar this year and 32 percent advance versus the euro prompted Finance Minister Shoichi Nakagawa to say last week that the government was ready to act as needed to limit the gains. For Related News: Stories on the euro and dollar: {TNI DOLLAR EURO} Stories on currencies: {NI FRX} To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net

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