The yen and dollar rose against the euro after a U.S. government official said bankruptcy may be the best option for General Motors Corp. and Chrysler LLC, spurring investors to buy the currencies as a refuge. Japan’s currency climbed to the strongest level versus the euro in almost two weeks as Asian stocks fell after a five-day rally on concern the global recession will lead to further losses in the financial industry. U.S. Treasury Secretary Timothy Geithner said yesterday some financial institutions will need “large amounts” of aid. “Risk aversion is coming back with a vengeance, and that will benefit safe-haven currencies,” said Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. “There’s concern that the U.S. government will allow auto companies to go under and that the financial crisis might be far from being over.” The yen advanced 1.7 percent to 127.78 per euro at 8:02 a.m. in New York, from 130.04 on March 27. It reached 126.42 earlier, the strongest since March 16, for a two-day gain of 5 percent, the most since Nov. 12. Japan’s currency appreciated 1.1 percent to 96.85 per dollar from 97.86. The dollar strengthened 0.7 percent to $1.3194 per euro from $1.3287. The euro fell against the dollar for a third day on speculation the European Central Bank will cut interest rates to the least since the currency’s introduction in 1999. The currency also dropped on speculation policy makers may be forced to adopt unconventional monetary policy measures, such as printing money, as rates approach zero. Quantitative Easing Both the Federal Reserve and the Bank of England bought assets such as corporate and government debt to boost the economy, a policy known as quantitative easing. The “key obstacle” to gains in the euro “is that the ECB too will adopt some form of quantitative easing,” said John Normand, head of global currency strategy in London at JPMorgan Chase & Co. “This Thursday’s ECB meeting will prove a key test given that every major central bank which met this month surprised the market with the scope and scale of quantitative easing.” The Dollar Index rose for a third day after an official in President Barack Obama’s administration who declined to be identified said GM and Chrysler must overhaul their recovery plans with deeper concessions to justify further taxpayer cash. GM asked for as much as $16.6 billion in additional assistance after receiving $13.4 billion since December. Chrysler requested $5 billion after getting $4 billion. Both had been asked to show progress by the end of this month in matters such as GM’s need to cut its unsecured debt by two thirds. Dollar Index The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, climbed 0.6 percent to 85.635 after reaching 85.81, the highest level since March 18. The dollar, the world’s main reserve currency, often strengthens in times of economic turmoil as investors seek a refuge. The yen also gains because Japan’s current-account surplus reduces the nation’s reliance on overseas lenders. The MSCI World Index slid 1.6 percent as stock markets in Europe declined. Futures on the Standard & Poor’s 500 Index dropped 2.7 percent. “The tumble in equities is sparking risk aversion among investors,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest bank. “The yen and the dollar are likely to be bought.” Yen Outlook The yen is likely to fall to its lowest level against the dollar in more than five months as Japan’s recession deepens and the appeal of the currency wanes, said Goldman Sachs Group Inc., reiterating a forecast it made on March 11. Japan’s currency will probably weaken because of factors including the plunge in the nation’s exports and Japanese investor purchases of foreign securities, Fiona Lake, a Hong Kong-based economist at Goldman Sachs, wrote in a note today. The yen’s “fair value” versus the dollar also is 114, suggesting the currency is “overvalued,” Lake wrote. “The macro challenges facing the yen has caused us to revise our yen forecast downward,” Lake said in an interview. “We expect dollar-yen to trade at 105 in three months’ time.” The Deutsche Bank trade-weighted yen index, measured against the U.S. dollar, the euro, the pound, the Canadian dollar and the Australian dollar, rose to 121.61 today. That’s still below its 100-day moving average of 126.02. Pound Declines The pound fell for a third day against the dollar after Nationwide Building Society, the U.K.’s largest customer-owned lender, agreed to buy parts of Dunfermline Building Society after the government declined to rescue the Scottish lender. Nationwide will purchase “core elements” of Dunfermline, the Bank of England said in a statement today. The British currency weakened to $1.4147, from $1.4320 last week, and to 93.13 per euro, from 92.81. The Frankfurt-based ECB is likely to reduce the main refinancing rate to 1 percent at its meeting on April 2, according to a Bloomberg News survey of economists. The euro also declined on speculation leaders from the Group of 20 nations, who meet on April 2 in London, will fail to agree on fiscal measures to counter the region’s slump. European officials this month said they had spent enough money to combat the crisis and don’t want to blow out their budgets. “The euro will weaken against the U.S. dollar given that the market expects the ECB to cut interest rates this week,” said Susumu Kato, chief economist in Tokyo at Calyon, the investment-banking unit of Credit Agricole SA. “Also European leaders, except for the U.K., will not want to do much more at the G-20 meeting, so this will also be very negative for the euro.” Geithner’s Plan Geithner’s plan to remove distressed assets from bank balance sheets through public-private partnerships and the Term Asset-Banked Securities Loan Facility, or TALF, will help to bring the financial crisis to its final stage, according to Credit Suisse Group AG. “The Geithner plan, unlike previous plans, puts us into the ninth inning of the financial crisis,” wrote Credit Suisse analysts Dominic Konstam and Carl Lantz in a note to clients. “If the problem is clogged balance sheets and insufficient capital to support credit growth, the Public-Private Partnership Program plus the TALF 2.0 should allow for the removal of substantial proportion of toxic assets under favorable pricing conditions for the banking system.”

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