By Daniel Kruger and Michael J. Moore Nov. 14 (Bloomberg) -- The yen posted weekly gains against the euro and the dollar as a record 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 greenback recorded a second weekly advance versus an index of the currencies of six major U.S. trading partners as investors sought the safety of dollar-denominated assets. The yen climbed against the Australian and New Zealand dollars this week on bets the 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 0.9 percent to 96.83 per dollar at 4:23 p.m. in New York, from 97.68 yesterday. Against the euro, the yen climbed 2.4 percent to 121.87 from 124.78. The euro fell 1.5 percent to $1.2579 from $1.2769. The pound fell 0.8 percent to 1.4720 from $1.4841. 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, increased 0.9 percent this week and reached 88.15 yesterday, the highest level since April 2006. The yen rose 1.2 percent versus the dollar this week, its biggest gain since Oct. 24, and advanced 1.6 percent against the euro, 5.2 percent versus the Aussie and 8.3 percent versus New Zealand's dollar. The euro fell 0.4 percent versus the dollar. U.S. Retail Sales 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 the yen as the Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly rose to 57.9 this month from 57.6 in October. ``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.'' Volatility implied by dollar-yen options expiring in one month rose to 28.55 percent yesterday, the highest in almost two weeks. A gain in expectations for future currency moves may discourage carry trades by making profits harder to predict. Drop in Stocks The Standard & Poor's 500 Index fell 4.2 percent after rallying 6.9 percent yesterday. The benchmark index of U.S. stocks decreased 6.2 percent this week. Japan's currency advanced 3.6 percent to 62.80 against the Australian dollar and 4.2 percent to 53.57 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. Europe's economy fell into its first recession in 15 years in the third quarter. Gross domestic product in the 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. 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. Bernanke on Volatility ``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.'' The pound slid 5.9 percent against the dollar this week as the Bank of England faced mounting pressure to lower borrowing costs. The bank is prepared to cut its main rate from 3 percent, Governor Mervyn King said this week. ``There's not a lot central bankers can say to soothe markets,'' said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. ``There are very strong easing expectations built in.'' 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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