The yen rose against the euro and the dollar as Asian stocks declined on concern the U.S. government’s bank-rescue plan will fail to revive lending, boosting demand for the currency as a haven. The yen also gained against higher-yielding currencies such as South Korea’s won and Sweden’s krona and the cost of protecting Asia-Pacific bonds from default rose after Treasury Secretary Timothy Geithner failed to provide details on how he will help banks cope with toxic assets. The euro may weaken before a report tomorrow that economists say will show European industrial production dropped the most in almost 23 years. “The plan is not the quick fix investors were hoping for, so there’s obvious disappointment,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Risk aversion will probably spur them to seek the relative safety of the dollar and the yen in the near term.” The yen strengthened 0.4 percent to 116.37 per euro as of 1:45 p.m. in Singapore after appreciating 1.8 percent yesterday, the first advance in four days. It advanced to 90.03 against the dollar from 90.47. The dollar was little changed at $1.2920 per euro, after gaining 0.7 percent yesterday. Trading may be subdued today because of a public holiday in Japan, Hampton said. The yen climbed 0.9 percent to 15.42578 against the won and 0.3 percent to 10.940 versus the krona. The Markit iTraxx Australia index was quoted five basis points higher at 330 basis points, according to Westpac Banking Corp. The benchmark is tied to the debt of 25 companies, including Qantas Airways Ltd. and BHP Billiton Ltd. Stocks Fall Japan’s benchmark interest rate of 0.1 percent, compared with 2.5 percent in South Korea and 2 percent in Sweden, encourages investors to borrow in yen and invest in assets elsewhere offering higher returns. Asian stocks fell for a second day, with the MSCI Asia- Pacific excluding Japan Index tumbling 2.5 percent. The Standard & Poor’s 500 Index lost 4.9 percent yesterday after Treasury Secretary Timothy Geithner pledged to spend as much as $2 trillion to help spur new lending. The U.S. Treasury is creating a Public-Private Investment fund, with an initial capacity of $500 billion that may grow to $1 trillion, to provide financing for private investors to buy distressed securities, Geithner said in Washington. Implied volatility on one-month euro-yen options rose to 26.3 percent from 26.2 percent. The measure, which indicates the risk of exchange-rate fluctuations that can erode profit on so- called carry trades, was 13.9 percent a year ago. British Pound “A number of currencies have benefited in recent days from anticipation that a bad bank structure would put a floor under U.S. asset prices,” Daniel Katzive, a senior currency strategist in New York at Credit Suisse Group, wrote in a research note yesterday. “A primary beneficiary of bad bank anticipation has been the British pound, and the lack of a convincing plan at this time should result in a reversal of recent pound gains.” The pound weakened versus 15 of the 16 most-active currencies today. Sterling declined 0.4 percent to $1.4478, and dropped 0.6 percent to 130.83 yen. The U.S. Senate voted 61-37 to approve a separate $838 billion economic stimulus package yesterday, clearing the way for negotiations with the House over a compromise plan lawmakers said they want to send to President Barack Obama quickly. The euro declined versus the yen on speculation industrial output in the region dropped by the most since January 1986, when Bloomberg began compiling the data, backing the case for the European Central Bank to cut interest rates. ‘Weakening Trend’ “Growth conditions will remain in a clear weakening trend,” Ashley Davies, a currency strategist in Singapore at UBS AG, the world’s second-largest foreign-exchange trader, wrote in a research note today. “We remain of the view that the single currency will remain in a broad downtrend, in particular versus the dollar.” The European Union’s statistics office may say tomorrow that industrial production fell 9.5 percent in December from a year earlier, after a 7.7 percent decline in November, according to a Bloomberg News survey of economists. Investors added to bets the ECB will lower borrowing costs from 2 percent at its March 5 meeting. The yield on the three- month Euribor interest rate futures contract due in March fell to 1.745 percent yesterday from 1.855 percent a week earlier. The euro weakened versus nine of the 16 major currencies on concern the financial turmoil in Europe will worsen. Poland may introduce as early as next month a regulation canceling some currency option transactions, Economy Ministry Waldemar Pawlak said in Warsaw yesterday. Currency Options Polish companies lost as much as 15 billion zloty ($4.24 billion) on contracts designed to protect them from a strengthening currency, when expectations of convergence with the euro reversed last year, regulators estimated yesterday. That was triple the initial forecast for such losses. “There is talk of various issues” in Poland, said John Horner, a currency strategist in Sydney at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “The euro is likely to remain under some pressure.” Poland’s zloty traded at 3.5205 against the dollar from 3.5255 yesterday, and was at 4.5456 per euro from 4.5525.

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