By Ron Harui and Stanley White Nov. 10 (Bloomberg) -- The yen declined for a second day against the euro and the dollar on speculation China's $586 billion stimulus package will give investors confidence to buy higher-yielding assets using money borrowed in Japan. The yen fell the most versus the South African rand and Australia's dollar as the boost to China's economy, the biggest export market for Japan, South Korea and Taiwan, improved risk appetite. The Group of 20 nations are ready to act ``urgently'' to prop up growth and urged governments to lower interest rates and raise spending at a meeting yesterday in Sao Paulo. ``China and the tone of the G-20 meeting are clearly going to provide some support to the economic outlook,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``This would reduce risk aversion. The yen looks weak overall.'' The yen fell 2.1 percent to 127.47 per euro at 1:48 p.m. in Tokyo from 124.90 late in New York on Nov. 7. Against the dollar, it declined to 98.98 from 98.24. The euro rose to $1.2881 from $1.2718. The British pound advanced to $1.5852 from $1.5643. The yen may decline to 130 versus the euro this week, Morriss said. Against the South African rand, the yen declined 3.6 percent to 9.9996 from 9.6559. It also fell 2.3 percent versus the Australian dollar to 67.74 and 1.4 percent against the New Zealand dollar to 58.92. In carry trades, purchases of higher-yielding assets are funded in nations with low interest rates, earning the spread between the two. The risk is that currency market moves erase those profits. Japan's benchmark rate of 0.3 percent compares with 3 percent in the U.K., 12 percent in South Africa, 5.25 percent in Australia and 6.5 percent in New Zealand. China Stimulus The yen also weakened as volatility implied by one-month dollar-yen options fell to 23.52 percent from 24.27 percent on Nov. 7, signaling a reduced risk of exchange-rate fluctuations that make carry trades unprofitable. China's stimulus plan, equivalent to almost a fifth of last year's gross domestic product, will go toward low-rent housing and infrastructure, the Beijing-based State Council said yesterday on its Web site. The government will also grant tax breaks to boost corporate spending. World leaders will meet in Washington on Nov. 15 to discuss their response to a global economic crisis sparked by losses on mortgage derivatives and a seizure in credit markets. ``Optimism over China's stimulus plan is contributing to stock market gains,'' said Takeshi Tokita, vice president of foreign-exchange sales in Tokyo at Mizuho Corporate Bank, a unit of Japan's second-largest publicly traded lender. ``This is helping to calm investor sentiment and causing the yen to weaken.'' The yen may decline to 99.50 per dollar and 128.50 against the euro today, Tokita said. ECB's Trichet The yen dropped versus all of the 16 most-active currencies as the MSCI Asia-Pacific Index of regional shares climbed 2.9 percent and the Nikkei 225 Stock Average rose 5.2 percent. Gains in the euro may be curbed after European Central Bank President Jean Claude-Trichet said in an interview with Brazilian broadcaster Globo TV that he can't rule out a further reduction in interest rates next month. Central banks around the world are lowering borrowing costs to stave off the worst of the banking crisis. The ECB cut its main refinancing rate by a half-percentage point on Nov. 6 to 3.25 percent. Policy makers in the U.K., Switzerland, and the Czech Republic trimmed their benchmark rates on the same day. ``There's talk of more ECB rate cuts, given the pessimistic outlook on Europe's economies,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The medium- to long-term downtrend for the euro is likely to persist.'' ECB Rate Bets Traders held bets the ECB will reduce rates in the first quarter of next year. The implied yield on Euribor interest-rate futures contracts expiring in March was unchanged from Nov. 7 at 3.005 percent. ``In December, at our next meeting'' the ECB will have new projections on economic growth and inflation and ``we do not exclude to decrease rates,'' Trichet said, Brazilian broadcaster Globo TV reported yesterday, citing an interview. Any losses in the dollar may be limited on speculation U.S. investors will repatriate funds held in overseas stocks and bonds on concern the global economy will slow further. ``We expect the dollar to rise this week because U.S. investors are continuing to repatriate funds from offshore,'' wrote Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney, in a research note today. The Australian dollar will weaken to 64 U.S. cents by the end of this year, according to CBA's forecast. Australia's central bank today cut its 2008 economic expansion forecast to 1.5 percent from 2 percent and said it had been forced to make ``unusually large'' reductions in the overnight cash rate target in October and November because renewed global turmoil raised the risk growth will stall. To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomerg.net; Stanley White in Tokyo at swhite28@bloomberg.net

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