By Matthew Brown July 8 (Bloomberg) -- The euro climbed for a third day against the yen as stocks rallied and European Central Bank President Jean-Claude Trichet signaled the economic recovery is gathering momentum. The 16-nation currency also rose to an eight-week high versus the dollar as Trichet said the second quarter in the euro region probably was better than the first quarter and that the need to intervene in government bond markets is “diminishing.” The yen fell against all 16 of its most-traded peers after the International Monetary Fund raised its global growth forecast. “Trichet’s statement is unlikely to diminish the more bullish outlook we’ve seen on the euro in the past couple of sessions,” said Audrey Childe-Freeman, a senior currency strategist at Brown Brother Harriman Ltd. in London. “Near- term, the euro can rally further.” The euro rose to 112.34 yen as of 9:27 a.m. in New York, from 110.84 yesterday, after reaching 112.43, the most since June 22. It climbed to $1.2685, from $1.2638, after advancing to $1.2694, the highest level since May 12. The yen weakened 1 percent to 88.57 per dollar. The MSCI World Index of shares gained 1.3 percent and the Stoxx Europe 600 Index added 1.3 percent. Pound Declines The pound fell against the euro and the dollar. 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, a unit of Lloyds Banking Group Plc, said earlier 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 $1.5147 and depreciated 0.6 percent to 83.75 pence per euro. The Australian dollar climbed against all 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 jumped 1.5 percent to 87.68 U.S. cents and climbed 2.5 percent to 77.66 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 were assuming smaller losses on Greek bonds than some investors anticipated. 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.” The ECB also kept its main rate at an all-time low of 1 percent, as forecast by all 55 economists surveyed by Bloomberg. Trichet said at a press conference in Frankfurt today that “indicators suggest that a strengthening in economic activity took place during the spring.” The main interest rate is “appropriate” and inflation expectations “remain firmly anchored,” he said. ‘More Confident Trichet’ “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. 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 1.1 percent to 91.45 Canadian cents. --With assistance from Paul Dobson and Keith Jenkins 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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