By Ron Harui and Anchalee Worrachate June 17 (Bloomberg) -- The yen rose for a second day against the euro on concern Europe’s debt crisis will impair an economic recovery of the 16-nation region, boosting demand for Japan’s currency as a refuge. The yen strengthened versus all 16 major counterparts as losses in Asian stocks spurred investors to reduce holdings of higher-yielding assets. The euro weakened on speculation European Union leaders will agree on new financial-market regulations when they hold a summit meeting today. South Korea’s won fell from a two-week high as concern Europe’s debt crisis will sap demand for Asian exports. “The EU heads may call for more rules, which may weigh on growth,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Risk aversion may persist, so the yen and the dollar could be bought.” The yen gained to 112.10 per euro at 7:30 a.m. in London from 112.57 in New York yesterday, when it fell to 113.32, the lowest since June 4. The yen rose to 91.33 versus the greenback from 91.44, and climbed 0.6 percent to 78.64 per Australian dollar. The dollar climbed to $1.2271 per euro from $1.2311. The MSCI Asia Pacific Index of shares fell 0.3 percent, and the Nikkei 225 Stock Average slipped 0.6 percent. The euro weakened against most major currencies after Spain’s central bank said yesterday it planned to publish the results of stress tests carried out on lenders to counter speculation it needs international aid. Last month the EU announced a 750 billion-euro ($920 billion) rescue mechanism to stem contagion from Greece as the risk premiums on Spanish and Portuguese bonds surged. ‘Challenges’ Ahead World Bank President Robert Zoellick said yesterday there are “challenges” ahead in Europe even if the rescue packages put together by authorities have “bought time.” EU leaders will meet in Brussels to discuss the region’s economies and the so-called stability and growth pact. The Bank of Spain plans to make the findings of its stress tests public to provide markets with full knowledge of the state of the country’s banking system, Miguel Angel Fernandez Ordonez, the central bank governor, said yesterday in a speech. “Investors continue to express concerns over Spain, especially whether the government can commit enough funds to ring-fence the banking sector,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a research note yesterday. The euro is likely to weaken to $1.15 in three months, he said. Greece, Spain Greece’s sovereign debt woes focused attention on Spain’s public finances and the cost of supporting the nation’s banks. Spain’s central bank has seized two lenders since the start of the crisis. The extra yield investors demand to hold Spanish 10-year government bonds instead of German bunds rose to a euro-era record of 2.21 percentage points yesterday. The Australian and New Zealand dollars fell for a second day as futures signaled U.S. stocks will decline, reducing demand for higher-yielding assets. “A fall in equity markets may ruin the underlying positive sentiment we’ve seen over the past few days,” said Phil Burke, chief dealer for foreign exchange and rates at JPMorgan Chase & Co. in Sydney. Australia’s currency slipped 0.3 percent to 86.11 U.S. cents, and New Zealand’s dropped 0.2 percent to 69.63 cents. Futures on the Standard & Poor’s 500 Index fell 0.5 percent. Benchmark interest rates of 4.5 percent in Australia and 2.75 percent in New Zealand compare with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Asian Currencies The won led losses in Asian currencies against the dollar on concern slowing global growth and the European crisis will damp demand for goods made in the region. “The won is sensitive to the euro,” said Ko Yun Jin, a currency dealer at Kookmin Bank in Seoul. “The won has been fluctuating based on the euro’s movements.” The won fell 0.5 percent to 1,216.35 per dollar, Malaysia’s ringgit declined 0.5 percent to 3.2735, and Indonesia’s rupiah dropped 0.2 percent to 9,163. To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net

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