By Ye Xie and Kim-Mai Cutler Dec. 9 (Bloomberg) -- The yen and the dollar increased the most versus the euro in more than a week as European reports showed the global economic slump deepened, increasing the haven appeal of the currencies. The euro weakened as an index showed German investors became more pessimistic this month about current economic conditions. The Canadian dollar fell after the central bank lowered its target lending rate to a half-century low and signaled more action may be needed. “We’ve had another round of disappointing fundamental data worldwide,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “When global growth weakens, that tends to be positive for the yen.” The yen appreciated 1.1 percent to 118.97 per euro at 10:06 a.m. in New York, from 120.26 yesterday. Against the dollar, the yen strengthened 0.3 percent to 92.51 from 92.82. The euro slid 0.8 percent to $1.2859 from $1.2963. The yen may gain to 90 per dollar in three months, according to Serebriakov. The dollar remained lower against the yen on speculation the U.S. housing slump will extend into a fourth year. An index of pending home resales fell 0.7 percent in October after dropping 4.3 percent in the prior month, the National Association of Realtors reported. The pound dropped 1.6 percent to $1.4683 as the Office for National Statistics said today in London that factory production slid 1.4 percent in October, the eighth monthly drop and the longest streak of declines since the 1980 recession, when Margaret Thatcher was prime minister. Home sales tumbled to the lowest level since data began three decades ago, the Royal Institution of Chartered Surveyors said. Weaker Aussie Australia’s dollar fell 1.5 percent to 65.54 U.S. cents as National Australia Bank Ltd. said its sentiment index for November fell one point to minus 30, the lowest since the series began in 1989. The Aussie dropped 1.6 percent to 60.71 yen. Canada’s currency fell 1.6 percent to C$1.2712 per U.S. dollar after the central bank lowered its target lending rate by 0.75 percentage point to 1.5 percent. The median forecast of 23 economists surveyed by Bloomberg News was for a reduction of a half-percentage point. The yen has gained this year against all 178 currencies tracked by Bloomberg News on speculation the global economic slump and cuts in interest rates will prompt investors to unwind carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.3 percent rate is the lowest among developed nations. Yen’s Gain Japan’s currency appreciated 21 percent versus the dollar, 37 percent against the euro and 71 percent versus New Zealand’s dollar. It’s headed for its first annual gain versus Brazil’s real, the euro and New Zealand’s dollar in at least six years. Implied volatility on one-month euro-yen options rose to 49.62 percent on Oct. 27, the highest level since Bloomberg began tracking the data in 1999. Increased volatility makes carry trades riskier by making profits harder to predict. The stronger yen has eroded Japanese exporters’ revenue. Sony Corp, the world’s second-biggest consumer-electronics maker, said on Oct. 23 that net income will probably drop 59 percent in the year ending March 31. It said today it plans to eliminate 16,000 jobs in the largest reduction announced by a Japanese company since the credit crunch drove the world into recession. The euro fell against the dollar today as the ZEW Center for European Economic Research in Mannheim said investors became more pessimistic about current conditions, with an index of sentiment slumping to minus 64.5 from minus 50.4. German investor confidence unexpectedly rose in December, a separate index showed. ECB Rate Cut The European Central Bank cut its main refinancing rate 0.75 percentage point on Dec. 4 to 2.5 percent, the single deepest cut in its benchmark interest rate in history. ECB forecasts published last week show the euro-region economy will shrink about 0.5 percent next year, which would be its first full-year contraction since 1993. The dollar has gained 35 percent versus the pound this year and 14 percent against the euro as the credit-market seizure and $980 billion of losses on mortgage-related securities worldwide led investors to repatriate overseas investment to the U.S. and seek shelter in the Treasuries. Demand for U.S. government bonds pushed the yield on the 10-year note to 2.505 percent on Dec. 5, the lowest since at least 1962, when the Federal Reserve’s daily records began. To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net

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