By Bo Nielsen Dec. 3 (Bloomberg) -- The yen rose against the euro as stocks dropped and a report showed the 15-member region’s retail sales fell for a fifth month, prompting investors to cut higher- yielding investments funded in Japan’s currency. The yen also gained for the third day against the dollar before a report that may show U.S. service industries contracted in November at the fastest pace on record, showing the global economic slump is worsening. The euro was close to its weakest in two weeks against the dollar as economists forecast the European Central Bank will cut its benchmark rate by half a percentage point to 2.75 percent tomorrow. “There’s continued risk aversion in the markets, which is beneficial for the yen,” said David Powell, a currency strategist with Bank of America Corp. in London. “The worst of the real data hasn’t been seen yet.” The yen rose 0.8 percent to 117.51 versus the euro as of 10:11 a.m. in London from 118.44 in New York yesterday. It traded at 92.98 per dollar, from 93.18. The euro lost 0.7 percent to $1.2621. European retail sales declined a worse-than-expected 2.1 percent in October from a year earlier, according to the European Union’s statistics office. A Bloomberg News survey had predicted a 1.5 percent decline. Europe’s Dow Jones Stoxx 600 Index lost 1.7 percent, extending the year’s retreat to 47 percent. More than $32 trillion has been erased from the value of global equities since the collapse of the U.S. mortgage market sparked financial turmoil. Carry Trades The yen slipped against all major currencies. The currency typically gains when investors reverse so-called carry trades, where they borrow funds in a country with low interest rates and invest in those with higher lending rates. The benchmark interest rate of 0.3 percent in Japan compares with 3.25 percent in the euro region and 4.25 percent in Australia. The Standard & Poor’s 500 Index futures slipped 1.9 percent. The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 42, the lowest level since records began in 1997, according to the median forecast in a Bloomberg News survey. The report is due at 10:00 a.m. New York time. Readings below 50 indicate a contraction. The U.S. economy entered a recession in December 2007, the first since 2001, The National Bureau of Economic Research said on Dec. 1. “There is a risk that the dollar will go lower,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second- largest publicly traded lender. “Disappointing economic data would highlight the extent of the U.S. recession and undermine confidence in buying the dollar.” To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

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