By Ye Xie and Kim-Mai Cutler Dec. 10 (Bloomberg) -- The yen fell versus the euro and the dollar as speculation rose that stock gains and government efforts to cushion against the global economic slump will prompt investors to buy higher-yielding assets. Japan’s yen declined versus the New Zealand and Australian dollars as U.S. lawmakers prepared to vote on a $15 billion plan to give General Motors Corp. and Chrysler LLC federal loans, encouraging the carry trade. South Korea’s won appreciated the most against the dollar in almost six weeks and the pound rose on the reduced haven appeal of the greenback. “There are broad indications the deterioration in sentiment is beginning to stabilize,” said Robert Sinche, head of global currency strategy in New York at Bank of America Corp., who recommends investors buy the euro versus the dollar and the yen. “The market will begin to think we’ve seen the worst of risk aversion. There’s good value in the euro-yen, and the defensive demand for the dollar will be reduced.” The yen weakened 1.2 percent to 120.49 per euro at 9:47 a.m. in New York, from 119.07 yesterday. Against the dollar, it depreciated 0.6 percent to 92.68 from 92.13. The euro increased 0.5 percent to $1.2992 from $1.2927. The won gained as much as 4 percent to 1,385.55 per dollar, the biggest intraday advance since Nov. 3. The Kospi index of South Korean stocks added 3.6 percent in a fourth day of advances. The pound increased 0.4 percent to $1.4803 on gains in global stocks. Yen Versus Aussie Japan’s currency dropped 0.8 percent to 61.15 versus the Australian dollar and 1.5 percent to 50.72 against New Zealand’s currency on speculation investors will resume 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 target lending rate compares with 4.25 percent in Australia and 5 percent in New Zealand. Implied volatility on one-month dollar-yen options fell to 18.98 percent, the lowest level since Oct. 21, indicating investors see less price fluctuation in the coming month. A reduction in volatility makes it easier to predict carry-trade profit, reducing risk. The Standard & Poor’s 500 Index added 0.7 percent after U.S. lawmakers and the White House agreed on auto legislation “in concept,” a senior administration official said yesterday. The MSCI Asia-Pacific index of regional shares rose 0.7 percent. “The yen’s bias is to weaken,” said Tetsu Aikawa, deputy general manager of the capital markets division at Shinsei Bank Ltd. in Tokyo. “Stock markets are showing signs of stability, and that will encourage investors to take on risk.” The yen may fall to 93 per dollar today, Aikawa said. Bank of Japan The yen extended declines after Bank of Japan Governor Masaaki Shirakawa told lawmakers today the country’s Finance Ministry has the option of intervening to stem abrupt currency moves. The central bank is watching the yen’s effect on the economy and taking that into account when deciding on monetary policy, he said. Central banks intervene in foreign-exchange markets by arranging the purchase and sale of currencies. Japan’s currency may strengthen to 90 per dollar should the yield on the U.S. two-year Treasury note decline to less than 0.6 percent, JPMorgan Chase & Co. said today in a research note based on correlation analysis. A drop in Treasuries today pushed the yield up 0.06 percentage point to 0.90 percent. The yen gained this year against all 178 currencies tracked by Bloomberg as the global recession encouraged Japanese investors to repatriate funds. The currency appreciated 21 percent versus the dollar, 36 percent against the euro and 70 percent against New Zealand’s dollar this year. Bond Buying Japanese investors bought 240.1 billion yen ($2.6 billion) more in overseas bonds, stocks and short-term securities than they sold in the week ended Nov. 29, the fifth consecutive week of net purchases, Finance Ministry data show. The dollar gained 34 percent versus the pound this year and 13 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 Treasuries. 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 0.4 percent to 85.523 today. It touched 88.463 on Nov. 21, the highest since April 2006. 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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