By Ron Harui and Stanley White Nov. 26 (Bloomberg) -- The yen rose against the euro as speculation the global recession will deepen prompted investors to pare holdings of higher-yielding assets funded in Japan. The currency also gained versus the Australian dollar and the British pound on concern the Federal Reserve’s $800 billion plan to unfreeze credit markets will fail to prevent a protracted global slump. The U.S. economy, the world’s biggest, shrank in the third quarter as consumer spending plunged the most in almost three decades, government data showed yesterday. “The yen should remain supported,” said Osao Iizuka, head of foreign-exchange trading at Sumitomo Trust & Banking Co. in Tokyo. “There was a bounce in sentiment after the Fed’s announcement of its latest measures. This has faded because there are still a lot of problems to work out.” The yen rose to 123.38 per euro as of 2:54 p.m. in Tokyo from 124.43 late yesterday in New York. It traded at 95.09 versus the dollar from 95.22. The euro fell to $1.2972 from $1.3064. The pound declined to $1.5352 from $1.5472. The yen may rise to 94.80 per dollar today, Iizuka said. Thailand’s baht slid as low as 35.35 per dollar, the weakest level since February 2007, as anti-government protesters stormed the main terminal at Bangkok’s international airport. The Swiss franc dropped to 1.1922 versus the dollar from 1.1835. Australia’s dollar fell to 61.31 yen from 61.82 yen in New York late yesterday. The pound dropped 0.9 percent to 145.99 yen. Japan’s benchmark interest rate of 0.3 percent compares with 3 percent in the U.K. and 5.25 percent in Australia. Higher Forecast In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is currency market moves can erase those profits. Bank of America Corp. raised its forecast for the yen against the dollar on expectations the Bank of Japan will delay cutting interest rates and Japanese investors may refrain from funneling funds into overseas assets offering higher returns. “We have pushed back our BOJ rate-cut forecast from December to February and narrower interest-rate differentials should raise hurdles to Japanese investors’ foreign asset investment over the next several months,” said Tomoko Fujii, head of economics and strategy for Japan at Bank of America in Tokyo, confirming a research note dated yesterday. “We have revised down our dollar-yen forecasts over the next year.” The yen will trade at 97 per dollar at year-end and 100 at the end of March, compared with previous forecasts of 101 and 105, respectively, Fujii said. Fed Action The Fed will buy as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the central bank said in statements yesterday in Washington. The Organization for Economic Cooperation and Development cut its forecast for global growth in 2009. The economies of the organization’s 30 members will contract 0.4 percent next year, after expanding 1.4 percent this year. Gross domestic product in the U.S. shrank at a 0.5 percent annual rate from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department in Washington. Toyota Motor Corp.’s debt rating was cut by Fitch Ratings, the automaker’s first downgrade in 10 years, as the slump in U.S. car sales drags down earnings at the company with the industry’s best credit. Fitch reduced Toyota’s senior unsecured debt rating two levels to AA from AAA with a negative outlook. Dollar Index 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, rose to 85.346 from 85.000 yesterday, when it fell 1.3 percent. The index climbed to 88.463 on Nov. 21, the highest level since April 2006. The dollar may be supported on speculation the global recession will be prolonged, spurring investor demand for the relative safety of government debt, according to UBS AG, the world’s second-largest foreign-exchange trader. “We believe that demand for safe, liquid stores of wealth will support the U.S. bond market and keep the U.S. dollar afloat,” Brian Kim, a currency strategist at UBS in Stamford, Connecticut, wrote in a research note yesterday. “The outlook on global growth remains highly uncertain.” U.S. government securities returned 4.7 percent in November, heading for their biggest monthly gain since 1985, according to Merrill Lynch & Co.’s U.S. Treasury Master index. The euro snapped a three-day winning stretch versus the dollar after a technical chart some traders use to predict price movements signaled its 3.8 percent gain in the past five days was excessive. “The euro’s surge over the last few days seems overdone, so we may see some selling of the currency,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. Europe’s single currency may decline to $1.2950 and 123.30 yen today, Ishikawa said. The euro’s 14-day stochastic oscillator versus the dollar was about 82. A level above 80 suggests a reversal may occur. To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net.

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