The yen rose against the dollar and the euro as stocks fell on concern the U.S. government’s bank- rescue plan won’t revive lending, boosting demand for Japan’s currency as a refuge from the financial turmoil. The yen also gained against higher-yielding currencies such as South Korea’s won as the cost of protecting bonds from default increased after Treasury Secretary Timothy Geithner failed to provide details on how he will help banks cope with toxic assets. Sweden’s krona dropped against every major currency after the Riksbank cut its key interest rate by more than economists forecast. “The risk aversion play is back on again,” said Neil Jones, head of hedge fund sales in London at Mizuho Corporate Bank. “We’re seeing safe-haven flows back into the yen. Many investors were disappointed with the stimulus-package announcement yesterday.” The yen climbed for a third day against the dollar, rising to 89.93 as of 10:36 a.m. in London, from 90.47 yesterday in New York. It was at 116.48 per euro, from 116.83. The dollar slid to $1.2954 per euro, from $1.2913. Geithner said yesterday he’s still “exploring a range of different structures” to bail out banks. 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. “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 relative safety.” Stocks Decline The MSCI World Index of stocks fell for a second day, losing 0.4 percent. The Standard & Poor’s 500 Index yesterday posted its biggest drop since Obama’s inauguration on skepticism the bank rescue will work. Implied volatility on one-month euro-yen options rose to 26.5 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. “A liquidation trade over the last year and a half has dominated and produced yen strength,” Jones said. “The carry trade is now largely gone. We’re seeing more repatriation flows now.” In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits. Swedish Krona The Swedish krona fell after the central bank cut the benchmark interest rate by a percentage point, the fourth reduction in as many months, and forecast further reductions to jump start lending and drag the economy out a recession. The median estimate in a Bloomberg survey was for policy makers to lower the rate by half a percentage point. The currency dropped to 10.8354 per euro, from 10.6530, and 8.364 per dollar, from 8.249. The pound dropped versus 14 of the 16 most-active currencies today as a government report showed unemployment rose to the highest since 1999 and the Bank of England said the economy is in a “deep recession.” Sterling fell to 89.50 pence per euro from 88.78 pence. It also weakened to $1.4472 from $1.4542 and to 130.20 yen from 131.57. The euro declined against the yen as two European Central Bank policy makers signaled the region’s key interest may be cut below 2 percent and as Credit Suisse Group AG, Switzerland’s second-biggest bank, reported a fourth-quarter loss that was larger than analysts forecast. ‘Below 2 Percent’ “Given the prospects of significantly deteriorating activity and low inflation, I am absolutely ready to go below 2 percent,” ECB council member Guy Quaden said at a press conference in Brussels on Feb. 9. Board Member Jose Manuel Gonzalez-Paramo said in an interview with Spain’s Radio Intereconomia today the current 2 percent benchmark rate isn’t the lowest that policy makers can envisage. Europe’s single currency will stay in a “broad downtrend” against the dollar as policy makers cut borrowing costs “rather aggressively” Manuel Oliveri, a Zurich-based currency strategist at UBS AG, wrote in a report to clients today.

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