By Ron Harui May 4 (Bloomberg) -- The yen fell to an eight-month low against the dollar and weakened versus the euro as signs the global economic recovery is gaining momentum damped demand for Japan’s currency as a refuge. The yen dropped against 14 of its 16 major counterparts before reports today that economists said will show U.S. home sales gained for a second month and U.K. manufacturing expanded. Australia’s dollar retreated from near a 19-month high against the yen after the Reserve Bank signaled it may slow the pace of interest-rate increases. Thailand’s baht rose after Prime Minister Abhisit Vejjajiva proposed holding an election in November, a move that may end eight weeks of protests. “There’s every reason to believe that growth prospects will be very good,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. “The mood is for risk taking, and we’ll see a drop in the yen.” The yen declined to 94.84 per dollar as of 6:47 a.m. in London from 94.54 in New York yesterday, after earlier falling to 94.99, the weakest since Aug. 24, 2009. Japan’s currency dropped 0.2 percent to 124.95 per euro. The euro was at $1.3176 from $1.3195, after sliding to $1.3115 on April 28, the weakest since April 28, 2009. Australia’s currency slipped 0.5 percent to 92.19 U.S. cents, and fell 0.1 percent to 87.47 yen. It climbed to 88.06 yen on April 30, the strongest since September 2008. Signs of Growth The yen weakened after U.S. reports yesterday showed manufacturing in the world’s largest economy grew at the fastest pace since June 2004 and consumer spending increased. “We expect a better-than-consensus non-farm payrolls print to support a medium-term higher dollar-yen,” analysts led by Hans-Guenter Redeker, London-based global head of foreign- exchange strategy at BNP Paribas SA, wrote in a research note. Japan’s currency also fell after Standard & Poor’s indicated a fiscal plan scheduled for next month by Prime Minister Yukio Hatoyama’s government may be key to whether it will cut the nation’s sovereign credit rating. The proposal will be “an important statement of the government’s commitment” to rein in the deficit, William Hess, director of sovereign ratings for Asia, said yesterday in Tashkent, Uzbekistan. “Something has to appear to change our assessment for where things could end up.” Australian Dollar Australia’s dollar fell against all 16 most-active currencies after the central bank raised interest rates today and said borrowing costs will now “be around average.” Governor Glenn Stevens increased the benchmark for the sixth time in seven meetings and said this represents a “significant adjustment” in monetary policy. “The markets reacted to the ‘average’ level, which overall is less hawkish,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “They may pause. It’s a bit negative for the Aussie.” Australia’s benchmark interest rate of 4.5 percent compares with 0.1 percent in Japan and around zero in the U.S., making the South Pacific nation’s assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves will erase profits. Thai Baht Thailand’s baht rose the most in seven weeks and the nation’s stocks advanced after Prime Minister Abhisit Vejjajiva proposed holding a Nov. 14 election to end a political stalemate. “This is definitely a positive step for the baht,” said Parson Singha, chief markets strategist in Bangkok at Hongkong and Shanghai Banking Corp. “It’s a relief that the situation will not become as bad as people expected.” The baht gained 0.4 percent to 32.26 per dollar, the biggest gain since March 17. The euro was near a one-year low against the dollar as investors sought more evidence that a 110 billion-euro ($145 billion) rescue package will resolve Greece’s debt crisis. The three-year financial lifeline requires Greece to reduce its budget deficit below the European Union limit of 3 percent of gross domestic product by the end of 2014, a year later than originally planned. Aid for Greece is of “enormous” importance, German Chancellor Angela Merkel said yesterday after convening a special meeting of her Cabinet that approved loans for Greece of as much as 22.4 billion euros over three years. “Even after the announcement of the aid package, investor uncertainty will unlikely decrease strongly until the member nations ratify the agreement,” Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a research note yesterday. The euro may drop to $1.30 in three months, he said. Greek government workers plan to shut down hospitals and schools today and disrupt flights as protests escalate after 30 billion euros of additional wage cuts and tax increases were unveiled this week.

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