The dollar rose against the euro for the first time in five days on speculation an economic recovery will be too weak to sustain gains in higher-yielding assets such as stocks, encouraging demand for safety. The greenback climbed against almost all of the most-traded currencies and the euro weakened versus the dollar as the contraction in the 16-nation economy deepened in the first quarter. The region’s shares fell on concern their three-month rally outpaced expectations for economic growth and earnings. “The dollar’s strength today is that people know these positions are a bit stretched,” said Geoffrey Yu, a foreign- exchange strategist in London at UBS AG, the world’s second- largest currency trader. “The markets need to realize things are not as good as what’s been priced in right now.” The U.S. currency climbed 0.8 percent to $1.4188 per euro at 10:18 a.m. in New York, from $1.4303 yesterday. The greenback gained as much as 1 percent, the biggest intraday advance since May 27. The dollar traded at 95.80 yen, compared with 95.76. The euro decreased 0.8 percent to 135.93 yen, from 139.97. Federal Reserve Chairman Ben S. Bernanke told lawmakers large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall. European stocks fell after the European Union’s statistics office reported that gross domestic product in the euro area contracted 2.5 percent in the first quarter, the biggest decrease since the data were first compiled in 1995. Weaker Ruble The ruble declined 0.8 percent to 30.7797 versus the greenback as Russian shares dropped. The dollar-denominated MSCI Russia Index, which climbed 105 percent through yesterday since the end of February, sank 4.3 percent, the most in almost two weeks, as Citigroup Inc. downgraded Russian stocks. The Standard & Poor’s 500 Index fell for the first time in five days, losing 0.8 percent as Credit Suisse Group AG cut its recommendation on U.S. equities. The dollar also rose versus the euro after Reuters reported Asian central banks are likely to keep buying U.S. Treasuries to help maintain market stability. The news service cited officials and other people with direct knowledge of policy whom it didn’t identify. “The recent reserve diversification fears are clearly exaggerated given the lack of any viable alternative to the dollar,” said Lee Hardman, a foreign-exchange strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. Bill Gross, founder of Pacific Investment Management Co., wrote in his investment outlook posted today on the Newport Beach, California-based firm’s Web site that holders of dollars should diversify before central banks and sovereign wealth funds ultimately do the same on concern deficits will deepen. Russian Proposal Russian President Dmitry Medvedev may discuss his proposal to create a new world currency when he meets counterparts from Brazil, India and China this month, Natalya Timakova, a spokeswoman for the president, told reporters yesterday. Russia’s proposals for the Group of 20 meeting in London in April included studying a supranational currency. Bernanke said deficit concerns are already increasing long- term Treasury yields. Yields on 10-year notes have climbed since the Fed announced plans in March to buy up to $300 billion of government bonds. The euro dropped versus the dollar today after Finland’s Finance Minister Jyrki Katainen said EU countries need bank stress tests to regain financial market trust and jolt them out of the first worldwide recession since World War II. ‘Improve Credibility’ “We need more knowledge of what’s going on in the biggest European banks,” Katainen said in an interview in Helsinki today. “That’s a precondition to improve credibility and trust and confidence in the banking sector.” European producer prices declined the most on record in April, led by lower energy costs, the EU’s statistics office said. Prices in the euro region fell 4.6 percent from a year earlier, after a revised 2.9 percent drop in March. That was the biggest decline since the series began in January 1981 and steeper than the 4.5 percent median forecast of 17 economists in a Bloomberg News survey. U.S. companies cut 532,000 jobs last month after eliminating a revised 545,000 positions in April, ADP Employer Services reported today. The median forecast of 29 economists surveyed by Bloomberg News was for a reduction of 525,000. A report from the Labor Department on June 5 will show the U.S. jobless rate climbed to 9.2 percent in May, the highest level in more than 25 years, a separate Bloomberg survey showed. Zloty Recommendation Standard Chartered Plc recommended buying the zloty against the euro because the prospects for economic growth and improving risk appetite may help the Polish currency strengthen about 9 percent. The zloty may rise to 4.10 against the euro by the end of the year, Manik Narain, strategist at Standard Chartered in London, said today in an interview. Poland’s currency decreased 1.1 percent to 4.5254 versus the euro. The zloty is now “extremely cheap,” with the real effective exchange rate more than 10 percent below the five-year average, Narain said.

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