The yen rose the most in almost three weeks against the euro as falling stock markets in Asia and Europe prompted investors to seek the perceived safety of Japanese assets. The currency gained for a second day versus the dollar on speculation Israel’s war in the Middle East is widening and before a U.S. jobs report tomorrow that may show a deepening of the economic slowdown. The British pound gained versus the euro and the dollar after the Bank of England today cut its benchmark interest rate to an all-time low of 1.5 percent to limit the fallout from Britain’s first recession in 17 years. “People are getting disappointed by how long the downturn will last,” said Paul Robson, a currency strategist at Royal Bank of Scotland Group Plc in London. “The yen is going to be the main beneficiary of the decline in risk appetite.” The yen appreciated 1.6 percent to 124.34 per euro as of 7:16 a.m. in New York. The dollar bought 91.74 yen, from 92.65 yesterday. The euro fell 0.6 percent to $1.3557. The pound strengthened to $1.5189 from $1.5095. Against the euro, the British currency appreciated to 89.90 pence from 90.35 pence. The yen may advance to about 115 per euro in 2009, Robson said The euro fell 0.5 percent to 1.4945 against the Swiss franc. European Central Bank President Jean-Claude Trichet sees a “significant” worsening in the economic environment, Institutional Investor magazine cited him as saying in an interview conducted at the end of 2008 published yesterday. “It’s clear that we have had a significant deterioration of the real economy,” Trichet told the magazine. BOE, Stocks Data today showed the European jobless rate rose to 7.8 percent in November from 7.7 percent the prior month and the region’s confidence in the economic outlook fell to the lowest level on record, adding to pressure on the ECB to cut interest rates when it meets on Jan. 15. The BOE lowered the main rate by 50 basis points, in line with economist predictions and the fourth cut since the global coordinated emergency reductions on Oct. 8. “It would take something extreme in terms of rate cuts to weaken sterling at the moment,” said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world’s largest foreign-exchange trader. “That’s what the market was expecting.” The Dow Jones STOXX 600 Index of European shares fell 0.8 percent, for a second daily decline. Asian stock markets slid. U.S. stock-index futures slipped following a 3 percent drop in the Standard & Poor’s Index yesterday. Risk Aversion “New Year optimism appears to have run into the brick wall of deteriorating economic conditions,” wrote London-based Steven Pearson, a foreign-exchange strategist at Merrill Lynch & Co, the investment bank acquired by Bank of America Corp. Militants in southern Lebanon fired at least three rockets into Israel, drawing Israeli fire in response, in the first sign that the conflict with Hamas in the Gaza Strip may spread elsewhere. Three rockets hit western Galilee and two people were lightly injured, police said. Israeli forces fought a monthlong war against Hezbollah in Lebanon in 2006. Crude oil climbed as much as 2 percent to $43.48 a barrel, paring yesterday’s 12 percent drop, on concern the conflict will disrupt supplies from the world’s largest oil-producing region. “This is a combination of problems in the Middle East and risk aversion,” said Gerrard Katz, head of foreign-exchange trading in Hong Kong at Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia. “It’s natural for the yen to strengthen, because it’s viewed as safe.” The yen may strengthen to 91.80 versus the dollar today, Katz said. U.S. Payrolls The dollar may weaken before a report of U.S. non-farm payrolls tomorrow, which will probably show they fell 510,000 in December, bringing last year’s decline to 2.4 million, the most since 1945, according to a Bloomberg survey before Labor Department figures due tomorrow. The unemployment rate likely jumped to 7 percent, the highest level since 1993. President-elect Barack Obama will give more details on a stimulus package which may amount to $800 billion in a speech today.

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