The yen fell for a third day against the euro before government reports that analysts say will show Japan’s recession is deepening, reducing the appeal of the currency. The euro approached a two-month high against the yen on speculation European investors are bringing home earnings on overseas assets before the end of the financial quarter. South Korea’s won gained for a third day versus the dollar, climbing from near an 11-year low, as overseas investors bought more of the nation’s shares than they sold. The yen also slid against the Australian and New Zealand dollars as Asian stocks rose. “Japan’s economic data are poor and the political situation is uncertain, which all bode ill for the yen,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “There is a possibility of the yen testing 100 per dollar shortly.” The yen dropped to 125.36 versus the euro as of 1:03 p.m. in Tokyo from 124.65 late in New York yesterday. The currency traded at 98.93 yen against the dollar from 98.84. The euro climbed to $1.2671 from $1.2611. The yen weakened against all of the 16 most actively traded currencies before a Cabinet Office report that will show the leading index of business conditions fell to 77.4 in January from 80 in December, according to a Bloomberg survey of economists. The coincident index, which shows current economic activity, dropped to 89.8 from 92.4, a separate survey showed. The reports are due at 2 p.m. in Tokyo. ‘Vulnerability’ “The incoming data is likely to illustrate the vulnerability of the Japanese economy,” said Takashi Matsumura, a Tokyo-based economist at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “The weak data will be yen-negative.” Japanese machinery orders slumped 40 percent in January from a year earlier, according to another Bloomberg survey before a Cabinet Office report tomorrow. The world’s second- biggest economy shrank an annualized 12.7 percent last quarter, the government said Feb. 16, the biggest contraction since 1974. The yen fell 1.2 percent to 63.19 versus the Australian dollar and weakened 1 percent to 49.21 against the New Zealand dollar from late in New York yesterday. The MSCI Asia-Pacific excluding Japan Index advanced 1.6 percent, and Standard & Poor’s 500 Index futures rose 0.5 percent. Repatriating Funds The euro gained on speculation Europeans will bring home earnings as they close their books before March 31. “Investors in central and eastern Europe appear to be repatriating funds,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan’s largest brokerage. The euro may strengthen to $1.27 and 126.50 yen this week, Amikura said. U.K. Chancellor of the Exchequer Alistair Darling called on the European Union to bolster a facility used to support nations facing financial difficulties, saying the EU must do more to help former communist states. “Our priority must be to support those countries most at risk from the aftershock of the global financial crisis, starting with those on our own doorstep in Europe,” Darling wrote in a letter to be published in the Guardian newspaper today. The Korean won rose 1.7 percent to 1,522.95 per dollar, according to Seoul Money Brokerage Services Ltd. The currency has dropped 17 percent this year, after sliding 26 percent in 2008, and touched 1,597 on March 6, the lowest level since 1998. ‘Situation Improving’ “There are offshore players who are selling dollars for the won after an excessive overshoot in the exchange rate in recent weeks,” said Roh Sang Chil, a currency dealer with Kookmin Bank in Seoul. “Rising stocks are lending support to the currency market. From April, we’ll see the overall situation improving.” Daily momentum charts such as the stochastic oscillator and moving average convergence/divergence are showing “buy” signals for the euro, said Masashi Hashimoto, a currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “If the euro can break the 21-day moving average of $1.2726, which has capped its gains recently, we may want to be bullish on the prospect of the single currency,” he said. A stochastic oscillator chart measures the closing price of a security relative to its highs and lows during a particular period to try to predict whether it will rise or fall. MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods. U.K. Financial Institutions Gains in the British pound may be tempered on concern that U.K. financial institutions will need to raise more capital to compensate for losses on so-called toxic assets. The pound may fall for a third day against the euro before a U.K. government report today that economists estimate will show manufacturing declined for an 11th month. Lloyds Banking Group Plc ceded control to the government in return for state guarantees covering 260 billion pounds ($360 billion) of risky assets, according to an asset insurance agreement. “There are ongoing worries that other U.K. banks may face possible nationalization,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The pound may be sold” to $1.3750 today, he said. The British currency was at $1.3809, from $1.3776 in New York yesterday.

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