By Andrew Macaskill Nov. 19 (Bloomberg) -- The yen rose against the dollar as speculation U.S. lawmakers will fail to agree on a bailout for automakers cut demand for higher-yielding assets bought with funds borrowed in Japan. The currency also gained against the Australian dollar and the South Africa rand as a deepening global economic slump spurred stock losses. A $700 billion U.S. financial stability package isn't intended to prevent General Motors Corp., Ford Motor Co. and Chrysler LLC from collapsing, Treasury Secretary Henry Paulson said in a House hearing yesterday. ``The focus at the moment is on concerns about the U.S. auto sector and fears that Congress will not be able to cobble something together,'' said Steven Barrow, a currency strategist at Standard Bank Plc in London. ``That is helping to give the yen support.'' The yen rose to 96.85 against the dollar as of 7:17 a.m. in New York from 97.03 yesterday. It may strengthen to 90 by March, Barrow said. The currency was little changed at 122.44 per euro. Against the dollar, the euro rose to $1.2645, from $1.2618. The pound slid 0.8 percent to $1.5079. The Australian dollar fell 1 percent to 62.69 yen, while the New Zealand dollar declined 0.7 percent to 53.23 yen. The South African rand slid 1.5 percent to 9.3341 yen. The yen is popular in carry trades, where purchases of higher-yielding assets are funded in nations with lower rates. Japan's benchmark rate of 0.3 percent compares with 3.25 percent in Europe, 5.25 percent in Australia, 6.5 percent in New Zealand and 12 percent in South Africa. U.S., Japanese Automakers The MSCI World Index lost 0.5 percent. Europe's Dow Jones Stoxx 600 Index declined 1.2 percent. Standard & Poor's 500 Index futures lost 1.2 percent. The yen has advanced 14 percent versus the dollar, 33 percent against the euro and 53 percent against the Australian dollar in the past three months as the global economy headed toward a recession. Nissan Motor Co., Japan's third-largest automaker, said profit in the second-half will go to ``zero'' because of lower sales in the U.S. and a stronger yen. ``I would recommend a continuation pattern of buying the yen,'' said David Bloom, the London-based global head of currency strategy at HSBC Plc, Europe's biggest bank by market value. ``Don't throw your coin in the well and wait around listening for the bottom of the market. This financial crisis is not over.'' The U.S. should reduce its trade and budget deficits to support the dollar as it is the world's reserve currency, Japan's Vice Finance Minister for international affairs Naoyuki Shinohara said today in a speech in Sydney. `Catastrophic Collapse' The U.S. economy would suffer a ``catastrophic collapse'' if domestic carmakers fail, GM Chief Executive Rick Wagoner said yesterday. Three million jobs would be lost within the first year and government tax losses would total $156 billion over three years, Wagoner told a Senate panel. The dollar may extend declines before government reports today that economists say will show the housing recession at the heart of the U.S. economic downturn is deepening, bolstering the case for the Federal Reserve to cut interest rates. The ICE's Dollar Index, a gauge of the greenback against the currencies of six major trading partners, snapped two days of gains as futures traders raised bets the Fed will lower borrowing costs in coming months. A U.S. report yesterday showed confidence among homebuilders dropped in November to the lowest level since record-keeping began in 1985. ``The reports are likely to indicate the U.S. economy is deteriorating further,'' said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France's second- largest bank by market value. ``The Fed may cut rates more. It's negative for the dollar.'' The dollar may weaken to 96 yen today, Saito said. The ICE's Dollar Index declined 0.2 percent to 87.193. Housing Starts Housing starts in the U.S. fell to a 780,000 annual pace in October, the lowest since records began in 1959, according to a Bloomberg News survey of economists. Building permits dropped to a 774,000 pace last month, the lowest since November 1981, a separate Bloomberg survey shows. The Commerce Department releases both reports at 8:30 a.m. in Washington. Futures on the Chicago Board of Trade show a 9 percent chance the Fed will reduce its 1 percent target rate for overnight bank loans to 0.25 percent by its Jan. 28 meeting, up from zero odds a day earlier. Economists say data today will show U.S. consumer prices fell 0.8 percent in October, the most since 1949, after being unchanged the previous month. The Fed will also today release minutes of its Oct. 29 meeting where policy makers cut rates by half a percentage point. ``The CPI numbers are likely to draw attention to a sharp fall in inflation,'' said Ian Stannard, senior currency strategist at BNP Paribas SA in London. ``We will continue to see the dollar remain stronger even if we see soft inflation data because the U.S. is already quite constrained with regards to rate cuts.'' To contact the reporters on this story: Andrew Macaskill in London at amacaskill@bloomberg.net

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