By Yasuhiko Seki and Ron Harui March 26 (Bloomberg) -- The euro rebounded from a 10-month low against the dollar after European Central Bank President Jean-Claude Trichet toned down criticism of the International Monetary Fund’s involvement in a Greek rescue plan. Europe’s currency strengthened versus 14 of its 16 most- active counterparts after European leaders meeting in Brussels yesterday endorsed a Franco-German proposal to assist Greece through a mix of IMF and bilateral loans. New Zealand’s dollar gained for a second day against the greenback as the nation’s trade surplus widened in February after commodity prices rose. “The agreement on a rescue plan for Greece has removed some anxiety about credit problems in that country and helped revive risk sentiment,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “This may accelerate the flow of assets into riskier assets.” The euro rose to $1.3334 as of 2:19 p.m. in Tokyo from $1.3273 in New York yesterday, after earlier falling to $1.3268, the weakest since May 7. The 16-nation currency gained to 123.58 yen from 123.08 yen. The yen was at 92.68 per dollar from 92.73 yesterday, when it fell to an 11-week low of 92.96. The euro gained for the first time in four days versus the dollar after Trichet told reporters in Brussels late yesterday that he was “extraordinarily happy that the governments of the euro area found out a workable solution.” ‘Extremely Clear’ “It’s an extremely clear political message,” EU President Herman Van Rompuy told reporters after the leaders met in Brussels. “It’s a mixed mechanism but with Europe playing the dominant role.” Earlier, Trichet had said an IMF role in the funding of a rescue for Greece would be “very, very bad.” The ECB President is concerned turning to the IMF to help Greece would show Europe can’t fix its own problems and earlier this month dismissed such a move as “inappropriate.” “A change in Trichet’s stance toward an aid plan for Greece triggered a knee-jerk buy-back of the euro,” said Yuichiro Harada, senior vice president of the foreign-exchange division at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest lender. “This change also helped ease concerns over discord among European leaders on how to resolve the debt problems in Greece.” Weekly Loss Europe’s currency still headed for a second weekly decline versus the dollar and the pound on concern that Greece’s fiscal austerity measures will limit government spending and curb wages, spurring deflation in the debt-laden country. “Given the weak level of help, it suggests that the main valve of adjustment will be a weaker currency as countries can only deflate relatively slowly,” analysts led by Hans-Guenter Redeker, London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note dated today. The effects of deflationary decisions can be forecast by “looking at Ireland’s experience,” the analysts said, citing the nation’s gross domestic product report released yesterday. Ireland’s GDP shrank 2.3 percent last quarter from the previous three months when it contracted 0.1 percent, according to government data. The euro has lost 1.5 percent against the dollar this week. It has dropped versus 15 of the 16 major currencies this quarter. N.Z. Dollar The New Zealand dollar extended a fourth-weekly gain versus the yen as Asian stocks rose and a report yesterday showed the economy grew at the fastest pace in two years. “Looking ahead we can see further improvements in New Zealand’s exports because of higher commodity prices,” and that should help the currency, said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. New Zealand’s dollar climbed 0.4 percent to 70.61 U.S. cents and gained 0.2 percent to 65.41 yen. The so-called kiwi has risen 2 percent versus the yen this week. UBS AG said it exited a bet the euro would weaken against the Canadian dollar after European Union leaders agreed to bring in the IMF to aid Greece. “The news that the EU has finally agreed on a package for Greece along with the IMF, to be activated in the worst-case scenario, may cause a relief rally in the euro,” Gareth Berry, a currency strategist at the world’s second-largest foreign- exchange trader, wrote in an e-mail today. The euro rose to C$1.3622 from C$1.3591 yesterday, when it fell to C$1.3572, the lowest level since November 2007. The euro has fallen 1 percent against the Canadian dollar this week. “We close out our short euro-Canadian dollar trade at 1.3605 for a profit of 2.8 percent,” Berry wrote. UBS entered the trade on March 10 at C$1.40, he said. To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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