By Ye Xie and Andrew Macaskill Nov. 24 (Bloomberg) -- The dollar fell the most against the euro in more than a week as Citigroup Inc. received $306 billion of U.S. government guarantees for its troubled assets, reducing demand for the greenback as a haven. The yen dropped versus the euro and the Brazilian real on speculation the rescue of Citigroup will slow the sale of higher-yielding assets funded by low-cost loans in Japan’s currency. The dollar dropped from a 2 1/2-year high against an index of the currencies of six major U.S. trading partners. “The government is trying to stop the bleeding,” said Steve Butler, director of foreign-exchange trading in Toronto at Scotia Capital Inc., a unit of Canada’s third-largest bank. “The momentum is on the positive side. There’s hope that the euro may bottom here.” The dollar weakened 1.7 percent to $1.2810 against the euro at 10:18 a.m. in New York, from $1.2587 on Nov. 21. The dollar traded at 95.96 yen, compared with 95.94. The euro rose 1.9 percent to 122.96 yen from 120.71. The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell to 86.60 after increasing to 88.463 on Nov. 21, the highest level since April 2006. “We are seeing the dollar’s haven status coming under some pressure today,” said Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment-banking arm of France’s Credit Agricole SA. “Stronger equities are being driven by the Citigroup bailout.” Yen Versus Real The yen declined 4.7 percent to 40.67 against the real and 3.5 percent to 9.49 against the South African rand on bets carry trades will unwind at a reduced pace. In such transactions, investors get funds in a country with low borrowing costs and buy assets where returns are higher. The Bank of Japan kept its benchmark interest rate last week at 0.3 percent, compared with 13.75 percent in Brazil and 12 percent in South Africa. Europe’s Dow Jones Stoxx 600 Index gained 4.2 percent, while the Standard & Poor’s 500 Index added 2.9 percent. In addition to U.S. government guarantees, Citigroup will get $20 billion in a cash injection from the Treasury, adding to the $25 billion the company received last month under the Troubled Asset Relief Program. The government will get $27 billion of preferred shares paying an 8 percent dividend in return for the cash and guarantees. The dollar fell 3.8 percent to 2.3690 against the real and 1.2 percent to 10.24 versus the rand. U.S. Housing U.S. home resales fell 3.1 percent to a 4.98 million annual pace in October, and prices fell by the most on record, the National Association of Realtors reported today in Washington. Purchases of existing homes account for about 90 percent of the U.S. housing market transactions. “The outlook in the U.S. once again has taken quite a nasty turn to the downside,” said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. “With the corporate sector deteriorating sharply, people are becoming more hesitant about repatriating into dollars.” Futures on the Chicago Board of Trade show 90 percent odds policy makers will lower the 1 percent target interest rate for overnight lending between banks to 0.5 percent at their next meeting on Dec. 16, compared with zero odds a month ago. The Fed reduced the rate by a total of a percentage point in October. German Sentiment The euro gained against the dollar even after a German report today showed business confidence slumped to the lowest level in almost 16 years in November as the global financial crisis sapped demand for exports. The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, dropped to 85.8 from 90.2 in October. That’s the lowest since February 1993. “The number was soft, but macroeconomic data is not driving euro-dollar at the moment,” said Martin McMahon, a currency strategist in Zurich at Credit Suisse Group AG. “Repatriation and deleveraging is the main theme. There is so much bad news around, it’s not really news anymore.” Asian economies will probably slow “substantially” as a global slowdown erodes demand for their exports, consumer confidence falters and banks restrain lending amid the credit crunch, the International Monetary Fund said. Growth in Asia including Japan, Australia and New Zealand will probably slow to 4.9 percent next year, from a 5.6 percent pace predicted in October, the Washington-based lender said in a report today. The economies, which grew 7.6 percent in 2007, may expand 6 percent this year, the fund said. The pound rose 1 percent to $1.5067 against the dollar before Prime Minister Gordon Brown outlines spending plans to aid U.K. companies. “The market is sensing that it will put a temporary floor under confidence, and that is giving a boost to sterling,” said Neil Jones, head of European hedge fund sales in London at Mizuho Capital Markets. “But it wouldn’t be sufficient to turn around the long-term downtrend for the pound.” To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Andrew Macaskill in London at amacaskill@bloomberg.net

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