July 6 (Bloomberg) -- The yen and the dollar declined against the euro as stocks recovered ground, damping demand for currencies perceived as a safe haven. The Australian dollar rose against all of its 16 most actively traded counterparts as the nation's central bank held interest rates steady and said business investment is set to expand. Riskier assets were also bolstered after a government report showed Australia's trade surplus swelled in May to A$1.65 billion ($1.4 billion), paced by Asian demand for coal and gold. The euro advanced as the Stoxx Europe 600 Index climbed for the first day in more than a week. "The yen came under pressure as stocks and some commodity currencies rebounded," said Ian Stannard, a currency strategist at BNP Paribas SA in London. "The Aussie dollar led the gain. Although the central bank kept rates on hold as expected, there's still a lot of optimism about the country's economic outlook." The yen weakened to 110.71 per euro as of 9:55 a.m. in London from 110.05 yesterday, and slipped to 87.89 per dollar from 87.77. The euro rose to $1.2594 from $1.2587. Australia's currency advanced 1.1 percent to 84.83 U.S. cents, after dropping to 83.16 cents on July 1, the lowest since June 10. The so-called Aussie bought 74.51 yen from 73.67 yen. Policy makers led by Governor Glenn Stevens kept the overnight cash rate target at 4.5 percent, the Reserve Bank of Australia said in a statement today. Profit Upgrades Stocks advanced as data showed analysts are raising earnings estimates for U.S. companies at the fastest rate since at least 2004. Profit for Standard & Poor's 500 Index companies will jump 34 percent in 2010, compared with a projected gain of 27 percent on March 29, according to more than 8,000 estimates compiled by Bloomberg. The yen has gained 13 percent against its global peers this year, according to Bloomberg Correlation-Weighted Currency Indices, as investors seek safety amid concern the global economy is slowing. Rich nations will reduce their primary budget deficits, excluding interest payments, by 1.6 percentage points next year, the most since the Organization for Economic Cooperation and Development began keeping records in 1970, according to JPMorgan Chase & Co. economists. The budget squeeze will lop 0.9 percentage point off growth in 2011. Recoveries worldwide are "very slow" and any tightening of monetary policies by central banks would cause a "big problem," Kenneth Rogoff, a Harvard University professor and former chief economist of the International Monetary Fund, said in a Bloomberg Television interview today. Australian Growth The Reserve Bank of Australia paused in raising borrowing costs for a second month today, and dropped a reference to the level of its benchmark rate being appropriate for the "near term," citing concern about the global outlook. "With the high level of the terms of trade expected to add to incomes and demand, output growth in Australia over the year ahead is likely to be about trend," Stevens said in the statement. "The market had built in a bit more bearishness than the RBA delivered," said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. "They don't seem as concerned about the global economy as the market and that should support the Aussie dollar." Euro Gains The euro may advance further against the dollar after breaking through the so-called neckline of an "inverse head- and-shoulder" pattern, said Pak Lai Ng, a technical analyst at Forecast Pte in Singapore, citing charts. Europe's single currency strengthened 1.6 percent last week to $1.2566, placing it above the neckline at $1.2420, he said. An inverse head and shoulders consists of three troughs with the middle one being the deepest. "So far the euro is keeping above the neckline break area," Ng said in an interview. "The outlook is still on the positive side." In a longer term, the common currency will depreciate to $1.08 by the end of this year and may near $1 in 2011 before recovering, according to Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. The euro weakened 15 percent against the dollar in the first half on speculation record budget deficits from Ireland to Portugal and Greece will force governments to cut spending and reduce economic growth. Bond yields among the euro-area's so- called peripheral nations surged relative to German bunds even as European Union leaders crafted an almost $1 trillion aid package to avoid sovereign defaults. "It's going to be an immensely challenging environment for these economies to try and regain competitiveness internally within the euro zone," said Osborne, the most accurate currency forecaster based on data compiled by Bloomberg. "The ECB is moving towards its version of quantitative easing. It suggests they're going to be very late now to the tightening cycle." --With assistance from Matthew Brown in London. Editors: David Clarke, Keith Campbell.

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