By Daniel Kruger and Michael J. Moore Nov. 14 (Bloomberg) -- The yen rose, heading for weekly gains against the euro and the dollar, as a drop in U.S. retail sales prompted speculation investors will sell higher-yielding assets and pay back low-cost loans in Japan's currency. The dollar was poised for a second weekly gain versus an index of the currencies of six major trading partners as investors sought the relative safety of U.S. assets. The yen climbed against the Australian and New Zealand dollars today on bets a Group of 20 nations summit will fail to reach a consensus on resolving the credit crisis, sapping carry trades. ``Consumers are falling off a cliff,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. ``It's more positive for the yen than it is for the dollar, but the dollar will do well against all the other currencies.'' The yen advanced 1 percent to 96.77 per dollar at 10:59 a.m. in New York, from 97.68 yesterday. Against the euro, the yen climbed 1.7 percent to 122.73 from 124.78. The euro depreciated 0.8 percent to $1.2669 from $1.2769. The pound decreased 0.2 percent to $1.4809. The ICE's Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and the Swedish krona, reached 88.15 yesterday, the highest level since April 2006. The dollar increased 1.2 percent versus the currencies this week, according to the index. Yen's Weekly Gains The yen rose 1.5 percent versus the dollar this week, its biggest gain since Oct. 24, and advanced 2.1 percent against the euro, 3.9 percent versus the Aussie and 7.1 percent versus the New Zealand dollar. Sales at U.S. retailers fell 2.8 percent in October, the biggest drop since records began in 1992, the Commerce Department reported today in Washington. The dollar briefly pared its loss against yen as the Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly rose to 57.9 from 57.6 in October. Volatility implied by dollar-yen options expiring in one month rose to 28.55 percent yesterday, the highest in almost two weeks. Gains in volatility, a measure of expectations for future currency moves, may discourage carry trades because they make profits harder to predict. ``The markets are extremely choppy, illiquid and subject to extremely wide swings on virtual air, and that includes Michigan,'' said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. ``I wouldn't suggest the markets are trading on economics as much as on equity flows at this moment.'' Drop in Stocks The Standard & Poor's 500 Index decreased 2.5 percent after rallying 6.9 percent yesterday. The Dow Jones Industrial Average dropped 2.8 percent following a gain of 6.7 percent. Japan's currency advanced 2 percent to 63.78 against the Australian dollar and 2.8 percent to 54.28 versus the New Zealand dollar today on speculation investors will unwind trades in which they get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.3 percent target lending rate compares with 1 percent in the U.S., 5.25 percent in Australia and 6.5 percent in New Zealand. The euro fell 0.4 percent this week against the dollar, while the British pound slid 5.4 percent as the European Central Bank and the Bank of England faced mounting pressure to lower borrowing costs. ``The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain,'' Federal Reserve Chairman Ben S. Bernanke said today at a panel discussion hosted by the ECB in Frankfurt. ``For this reason, policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.'' European GDP Gross domestic product in the 15 euro nations shrank 0.2 percent from the previous three months, when it also contracted 0.2 percent, the European Union's Luxembourg-based statistics office said today. The two quarters of contraction mark the first recession since the single currency was introduced almost a decade ago. ``The real pressure on the euro is coming from expectations of a more dramatic frontloading of the rate-easing cycle by the ECB,'' said Peter Frank, a London-based currency strategist at Societe Generale SA, France's second-biggest bank by market value. ``This is definitely a big negative for the euro right now. It's very much a macro-driven move.'' The Bank of England is prepared to cut rates from 3 percent, Governor Mervyn King said this week. Leaders of G-20 countries were gathering in Washington 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. To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

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