By Matthew Brown July 8 (Bloomberg) -- The euro climbed for a third day against the yen as stocks rallied on signs the global recovery is regaining momentum. The 16-nation currency rose to an eight-week high against the dollar as the European Central Bank kept its main interest rate at a record low 1 percent amid speculation that regional regulators conducting stress tests on banks were assuming smaller losses on Greek bonds than some investors anticipated. The yen fell versus all 16 of its most-traded peers after the International Monetary Fund raised its global growth forecast. “The revised forecasts from the IMF have given the market an opportunity to rebound from its risk-averse sentiment,” said Audrey Childe-Freeman, a senior currency strategist at Brown Brother Harriman Ltd. in London. “Near term, the euro can rally further, while further down the road there are still many negatives for the euro.” The euro rose to 111.50 yen as of 12:55 p.m. in London, from 110.84 yesterday in New York, after reaching 112.01, the most since June 22. It climbed to $1.2655, from $1.2638, after earlier rising to $1.2688, the highest level since May 12. The yen weakened 0.4 percent to 88.09 per dollar. The MSCI World Index of shares gained 0.6 percent and the Stoxx Europe 600 Index added 0.7 percent. Pound Declines The pound fell against the euro and the dollar after the Bank of England kept its bond-buying stimulus plan unchanged and left its benchmark interest rate at a record low 0.5 percent to prevent the economic recovery from stalling. Halifax said U.K. house prices fell 0.6 percent in June from a month earlier. Manufacturing output climbed 0.3 percent in May after a revised drop of 0.8 percent in April, twice the rate of decline previously estimated, according to data today from the Office for National Statistics. The pound dropped 0.3 percent to $1.5144 and depreciated 0.4 percent to 83.54 pence per euro. The Australian dollar climbed against all but one of its 16 most-traded counterparts after a report showed employers in the nation added three times more jobs in June than economists predicted. Job growth increased by 45,900, after rising a revised 22,800 in May, the statistics bureau said in Sydney. Economists forecast a gain of 15,000, according to a Bloomberg survey of 22 economists. The Aussie gained 1 percent to 87.29 U.S. cents and climbed 1.4 percent to 76.87 yen. Forecast Raised The IMF said in its World Economic Outlook that the global economy will expand 4.6 percent in 2010, the most since 2007, compared with an April projection of 4.2 percent. The euro climbed to a two-week high against the yen on speculation stress tests for European banks will ease concerns about the health of the region’s financial system. European regulators have told lenders their planned tests may assume a loss of about 17 percent on Greek debt and 3 percent on Spanish bonds, according to two people briefed on the talks. Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default. “What the stress-test results might do is help to calm investor nerves,” said Khoon Goh, senior market economist at ANZ National Bank Ltd. in Wellington. “Investors are starting to reduce exposure in dollars and diversify into euros.” ‘More Confident’ The ECB decision was forecast by all 55 economists surveyed by Bloomberg. President Jean-Claude Trichet will hold a media briefing after the meeting. “We expect a somewhat more confident Trichet, which should be positive for the euro,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong, wrote in a note today. The ECB last held an interest-rate meeting on June 10, when it kept rates unchanged and said it would keep buying government bonds. The euro gained 1.2 percent that day after Germany’s highest constitutional court rejected an attempt to block the nation from granting guarantees as part of the euro-area rescue. “Once again, the focus will be not on what they do, but more on what they say,” Simon Smith, chief economist in London at FxPro, an online currency trader, wrote in a research note today. “The ECB may be dragged by the market into quantitative easing. The implication of this would be a loss of credibility, given its implied reluctance.” Australia’s dollar may rise versus its Canadian counterpart as Chinese growth benefits the South Pacific nation while the North American country is more at risk to a U.S. slowdown, Goldman Sachs Group Inc. said. Investors should buy Australia’s dollar, targeting gains to 95 Canadian cents, and exit the trade if it closes below 88.5 Canadian cents, Goldman analysts including Fiona Lake wrote in a note to clients. The Aussie rose 1 percent to 91.36 Canadian cents. --With assistance from Paul Dobson in London, Yoshiaki Nohara in Tokyo and Frances Yoon in Seoul. Editors: Daniel Tilles, David Clarke To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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