By Stanley White Nov. 14 (Bloomberg) -- The yen rose, heading for weekly gains against the dollar and the euro, as signs of a deepening global economic slump prompted investors to pare holdings of higher-yielding assets funded in Japan. Japan's currency climbed this week against the Australian and New Zealand dollars on speculation a Group of 20 nations summit will fail to reach a consensus on how to tackle the credit crisis. The euro headed for a weekly decline before a government report that will probably show a second quarter of contraction in the 15 nations that share the currency. ``I'm looking for the yen to strengthen against the dollar,'' 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. ``No one is sure what will come out of the G-20. It's likely that the U.S. and Europe won't see eye to eye on many of the problems the global economy is facing.'' The yen strengthened to 97.13 per dollar as of 1:26 p.m. in Tokyo from 97.68 late yesterday in New York. Against the euro, it climbed to 123.76 from 124.78. The euro fell to $1.2741 from $1.2769. The pound weakened to $1.4816 from $1.4841. The yen may rise to 95.50 today, Tokita said. Japan's currency gained to 63.66 yen per Australian dollar from 65.07 late yesterday in New York. It also advanced to 54.78 yen versus the New Zealand dollar from 55.81. Weekly Performance Against the dollar, the yen rose 1.2 percent this week, its biggest gain since Oct. 24, on speculation investors reduced carry trade purchases of higher-yielding assets funded with currencies with lower rates. The yen rose 1.1 percent against the euro, 3.9 percent against the Australian dollar and 6.1 percent versus the New Zealand dollar this week. Benchmark interest rates are 0.3 percent in Japan, 1 percent in the U.S., 3.25 percent in Europe, 5.25 percent in Australia and 6.5 percent in New Zealand. U.S. President George W. Bush yesterday urged leaders of the world's biggest economies not to abandon free-market capitalism following the seizure in credit markets. G-20 leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the U.S. for failing to rein in investors and speculators. G-20 Leaders of G-20 countries gather in Washington today to debate proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks after financial institutions worldwide lost $958 billion on securities tied to U.S. mortgages. Volatility implied by dollar-yen options expiring in one month was last at 26.72 percent, near an almost two-week high of 28.55 percent reached yesterday. Gains in volatility, a measure of expectations for future currency moves, may discourage carry trades as it makes profits harder to predict. ``No one is betting on volatility going down,'' said Shinichi Takasaka, manager of foreign exchange and financial products trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed bank. ``I don't see any practical plan coming out of the G-20. That's part of the reason why the yen is rising.'' The yen was also buoyed on speculation its 2.7 percent slide against the dollar and 4.8 percent tumble against the euro yesterday was excessive. U.S. stocks rallied the most in two weeks, sparking the currency's decline. ``We had such a big move yesterday, Japanese exporters are likely to buy the yen on the cheap,'' said Osao Iizuka, head of foreign exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``People are also eyeing the G-20 meeting.'' The euro fell 1.1 percent this week against the yen, while the pound slid 5.3 percent versus the greenback on growing evidence policy makers in Europe and the U.K. will lower borrowing costs. European Rates Gross domestic product in the 15 euro nations shrank 0.2 percent in the third quarter after contracting by the same amount in the previous three-month period, according to a Bloomberg survey. Two consecutive quarters of contraction would mark the first recession since the single currency was introduced in 1999. The European Union's statistics office will release the data at 11 a.m. today in Luxembourg. Germany, Europe's largest economy, entered a recession in the third quarter, data showed yesterday. Japan's gross domestic product was unchanged in the three months ended Sept. 30, according to the median estimate of economists surveyed by Bloomberg News before the government report Nov. 17. The Bank of England is prepared to cut rates from 3 percent after predicting U.K. gross domestic product will contract by an annual 1.8 percent in the first quarter, Governor Mervyn King said on Nov. 12. ``European GDP will confirm the extent of the damage,'' Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France's biggest bank, wrote in a research note yesterday. ``The BOE might continue to cut rates at a fast pace. We expect sterling to come under further significant downward pressure.'' To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.

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