By Daniel Kruger and Agnes Lovasz Nov. 10 (Bloomberg) -- The yen fell the most against the euro in almost a week on speculation China's $586 billion stimulus package will give investors more confidence to buy higher-yielding assets using money borrowed in Japan. Japan's currency also dropped against the dollar, the Australian dollar and South Africa's rand as stocks and commodities rose following China's announcement yesterday, boosting the carry trade. The dollar weakened against the euro, the pound and India's rupee after the Group of 20 nations said they're ready to act ``urgently'' to support global growth, reducing demand for the safety of dollar-denominated assets. ``Any time you have yen carry being put back on, the high-yielders benefit,'' said Andrew Busch, a currency strategist at BMO Capital Markets in Chicago. ``It's part and parcel of the risk being put back on.'' The yen fell 2.4 percent to 128.02 per euro at 8:46 a.m. in New York, from 124.90 on Nov. 7. Against the dollar, it dropped 0.9 percent to 99.11 from 98.24. The euro rose 1.5 percent to $1.2914 from $1.2718. The pound gained 1 percent to $1.5802. China's stimulus plan, equivalent to almost a fifth of last year's gross domestic product, is a response to a slump in its major export markets. Japan will contract 0.2 percent next year, the U.S. by 0.7 percent and the euro area 0.5 percent, while China will expand 8.5 percent, said the International Monetary Fund last week. It predicted the first simultaneous recession in the U.S., Japan and the euro countries since World War II. Yen Versus Rand The yen fell 4.3 percent to 10.0883 against the rand, 3.5 percent to 68.63 versus the Aussie and 2.5 percent to 59.60 against New Zealand's dollar on speculation investors will resume carry trades, in which they get funds in countries with low borrowing costs and buy higher-yielding assets elsewhere. Japan's benchmark rate of 0.3 percent compares with 12 percent in South Africa, 5.25 percent in Australia and 6.5 percent in New Zealand. The yen also weakened as volatility implied by one-month dollar-yen options fell to 23.15 percent from 24.27 percent on Nov. 7, signaling a lower risk of exchange-rate fluctuations that can make carry trades unprofitable. Stocks rose in Europe and Asia today and U.S. index futures climbed as appetite for higher-yielding assets improved. The MSCI World Index added 1.7 percent. Europe's Dow Jones Stoxx 600 Index advanced 3.1 percent and futures on the Standard & Poor's 500 Index climbed 2.7 percent. China's Stimulus ``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. The G-20 industrial and emerging nations, meeting yesterday in Sao Paulo, called on countries to cut interest rates and raise spending to combat the threat of a global recession. Brazil, Russia, India and China, the so-called BRIC nations, plan coordinated measures to increase trade and capital flows among their economies, Russian Finance Minister Alexei Kudrin said in an interview on Nov. 8 in Sao Paulo. The rupee climbed 0.6 percent to 47.3700 per dollar today. Russia's Ruble Russia may be forced to accept a devalued ruble as tumbling oil prices and an exodus of capital erode the country's foreign- exchange reserves, the world's third-largest. The currency may slump as much as 30 percent in the event of devaluation, Troika Dialog, Russia's oldest investment bank, said last week. Reserves fell 19 percent to $484.6 billion in the 12 weeks through Oct. 31. Gains in the euro may be curbed after European Central Bank President Jean-Claude Trichet told Brazil's TV Globo he can't rule out a further rate reduction, according to traders. ``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.'' Traders increased bets the ECB will reduce its 3.25 percent rate in the first quarter of next year. The implied yield on Euribor interest-rate futures contracts expiring in March fell to 2.990 percent today from 3.005 percent on Nov. 7. ``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, Globo TV reported yesterday, citing an interview. Technical charts that predict currency movements indicate the dollar may rise this week to so-called resistance at the Nov. 4 high of 100.55 yen, according to Shinko Securities Co. The greenback is poised to gain after breaking above its 20-day moving average, said Kengo Suzuki, currency strategist at Shinko Securities in Tokyo. Resistance is where sell orders may be clustered. The dollar may also advance as its daily stochastic and moving average convergence/divergence charts are showing buy signals, Suzuki said. Should the U.S. currency climb above 100.55 yen, it may then move to its Oct. 14 high of 103.07, he said. To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Agnes Lovasz in London at alovasz@bloomberg.net

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