By Daniel Kruger and Agnes Lovasz Nov. 12 (Bloomberg) -- The yen rose the most against the euro and the dollar in two weeks as Treasury Secretary Henry Paulson's plan to divert bailout money from banks to consumers prompted investors to sell higher-yielding assets. The pound fell to a record low against the euro for a third day after the central bank said the British economy will shrink through most of next year as a result of the global credit freeze. The dollar rose to a two-week high against the currencies of six trading partners on increased demand for the safety of U.S. assets. ``The markets are probably ill at ease with the concept that TARP funds, which were targeted for financial-sector stabilization, are now getting pushed away from that purpose by the political process,'' said Robert Blake, a senior currency strategist in Boston at State Street Global Markets LLC, which has $15.3 trillion in assets under custody. The yen climbed 2.5 percent to 95.18 per dollar at 11:43 a.m. in New York, from 97.65 yesterday. Japan's currency increased 2.6 percent to 119.26 per euro from 122.27. The euro traded at $1.2527, compared with $1.2522. Paulson plans to use the second half of the $700 billion Troubled Asset Relief Program, known as TARP, to help relieve pressure on consumer credit, scrapping an effort to buy devalued mortgage assets. The Treasury and the Federal Reserve are exploring a new ``facility'' to aid the market for securities backed by assets, Paulson said in a speech in Washington. Dollar Index The ICE's Dollar Index, which tracks the U.S. currency against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and the Swedish krona, rose to 87.513, the highest level since Oct. 28. Japan's currency appreciated 5.7 percent to 41.55 against the Brazilian real and 3.5 percent to 9.13 versus the South African rand on speculation investors will unwind carry trades, in which they get funds in a country with low borrowing costs and buy higher-yielding assets elsewhere. Japan's 0.3 percent target lending rate compares with 13.75 percent in Brazil and 12 percent in South Africa. ``We're not in a situation where the market can derive any sort of serious confidence in the global economy,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. ``Between the uncertainty and the periodic optimism, the negative will win the day.'' U.S. stocks declined for a third day as oil's slide to a 20-month low dimmed the earnings outlook for commodity producers. The Standard & Poor's 500 Index fell 3.2 percent, extending its decline on Paulson's comments. Crude oil for December delivery fell $2.82 to $56.51 a barrel in New York. Drop in Pound Sterling dropped as much as 3.1 percent to the record low of 84.05 pence per euro after Bank of England Governor Mervyn King signaled policy makers aren't done cutting rates. The pound decreased as much as 3.2 percent to $1.4898, the lowest level since June 2002. ``Governor King was on the wires again this morning highlighting the downside domestic risks to growth,'' said Dustin Reid, senior foreign-exchange strategist at RBS Greenwich Capital Markets in Chicago. ``The fact that he continues to harp on it, and it's at such a senior level, probably has a lot of people concerned about sterling.'' U.K. jobless claims rose 36,500 last month to 980,900, the highest level since March 2001, the Office for National Statistics said today, adding to evidence Europe's second- largest economy is mired in a recession. Reports yesterday showed retail sales fell for the first time since April 2005 and home sales slid to the lowest level in at least 30 years. ``In this kind of environment, it's going to be hard for sterling to shrug off the negative mindset,'' said Gavin Friend, a strategist in London at National Australia Bank Ltd. who recommends investors sell the pound against the euro. ``We haven't found the bottom yet.'' 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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