The dollar and yen advanced against most of their major counterparts as concern losses at financial firms will deepen encouraged demand for havens. Japan’s currency strengthened versus the euro for the first time in three days as global stocks tumbled. The euro was headed for its biggest weekly decline against the dollar in a month as European Central Bank President Jean-Claude Trichet said the financial crisis poses a serious challenge. “The pattern has been consistent with risk-off trades,” said Robert Blake, head of strategy for North America in Boston at State Street Global Markets LLC, which has about $12 trillion in assets under custody. “The banking sector is front and center again. Our view is that the flows into the dollar will continue for a while as risk aversion persists.” The dollar advanced 0.4 percent to $1.2618 per euro at 9:54 a.m. in New York, from $1.2674 yesterday. The dollar touched a three-month high of $1.2513 on Feb. 18. The yen appreciated 0.4 percent to 118.87 per euro from 119.37. Japan’s currency was little changed at 94.21 per dollar, compared with 94.20. It slid beyond 94 yen yesterday for the first time since Jan. 7. The greenback was headed for a 2.2 percent gain versus the euro this week. The yen was poised for a weekly decline of 2.5 percent versus the dollar, the biggest drop since late October, and was down 0.2 percent versus the euro. The ICE’s Dollar Index, which tracks the U.S. currency versus the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, rose 0.7 percent to 88.086 today after touching 88.254 on Feb. 18, the highest level since Nov. 21. Yen Versus Won Japan’s currency gained 1.6 percent to 15.99 South Korean won and 1.5 percent to 13.51 versus the Norwegian krone. The yen is attractive in times of financial turmoil because Japan’s current-account surplus reduces the country’s reliance on overseas lenders. Stocks declined, with the MSCI World Index falling for a ninth day, retreating 1.6 percent, and the Standard & Poor’s 500 Index dropping 1.3 percent. JPMorgan Chase & Co. lost 5.8 percent after former Oppenheimer & Co. analyst Meredith Whitney forecast banks won’t continue to pay their existing dividends. “Some people are buying yen as a hedge against falling stocks,” said Neil Jones, head of hedge fund sales in London at Mizuho Corporate Bank. The global credit crisis poses a “serious challenge” to the financial system and economic policy makers around the world, Trichet said today in a speech in Paris. The ECB will provide financial institutions with unlimited cash for as long as needed to help them through the crisis, he said. European Industries Europe’s manufacturing and service industries unexpectedly contracted at a record pace in February, an index based on a survey of purchasing managers by Markit Economics showed. A composite index of both industries fell to 36.2, a record low. The median forecast of 13 economists surveyed by Bloomberg News was for an increase to 38.5. The euro headed for a second straight weekly loss against the dollar after ECB council member Erkki Liikanen said policy makers haven’t used all the tools at their disposal to revive the region’s flagging economy. “I’m convinced that we have not exhausted our creativity and our capacity to take initiatives,” Liikanen, who also heads the Bank of Finland, said in an interview with Finnish newspapers Turun Sanomat and Kaleva published today. The ECB cut its main refinancing rate by 2.25 percentage points to 2 percent since October. The bank may lower borrowing costs again at its next meeting on March 5, Trichet and Liikanen said. Policy makers will reduce the rate to 1.5 percent, according to the median forecast of 30 economists surveyed by Bloomberg News. Target Rates Europe’s target rate compares with 1 percent in the U.K., zero to 0.25 percent in the U.S. and 0.1 percent in Japan. “The outlook for a narrowing interest-rate differential is negative for the euro,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management Ltd., a unit of France’s third-largest bank. “The euro may fall to below $1.25 in the near future.” Germany’s Chancellor Angela Merkel said yesterday the region is “strong” and declined to comment on whether Europe’s largest economy would bail out any euro members, saying she won’t speculate on the relative health of other countries. The euro dropped 1.7 percent against the dollar on Feb. 17 after a report from Moody’s Investors Service raised concern financial turmoil in eastern Europe may slow growth in the countries that use the common currency. The euro is down 11 percent against the dollar this year.

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