The yen traded near an almost three- week low against the euro as stocks rose on signs the global economy will weather Europe’s debt crisis, damping demand for the relative safety of Japan’s currency. Europe’s shared currency headed for a second weekly gain versus the dollar as the Stoxx Europe 600 Index of shares advanced for a fourth straight day. South Korea’s won rose for a second day after the central bank unexpectedly raised interest rates for the first time since the onset of the global financial crisis. The Canadian dollar strengthened after a report showed job creation in June was almost five times more than forecast. “All eyes are on the equity markets,” said Derek Halpenny, European head of currency research at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “Risk appetite is helping the euro and hurting the yen, although I think we’re in for some disappointment in terms of growth further down the road.” The yen was little changed at 112.29 per euro as of 7:05 a.m. in New York, and reached 112.67, the weakest since June 21. Japan’s currency has fallen 1.8 percent against the euro this week. The yen slipped 0.2 percent to 88.57 per dollar. The euro depreciated 0.2 percent to $1.2676, trimming its weekly gain to 0.9 percent. The yen headed for a weekly loss versus all 16 of the major currencies, dropping 5.2 percent against the Australian dollar and 4.2 percent versus New Zealand’s dollar. The Stoxx Europe 600 Index rose 0.5 percent. The MSCI World Index added 0.3 percent, for a weekly advance of 4.9 percent, the most in almost a year. Growth Signs Demand for higher-yielding assets increased after a U.S. report yesterday showed initial claims for jobless benefits fell last week. Italian industrial output climbed a more-than- forecast 1 percent in May, a third monthly gain, and French production expanded a greater-than-predicted 1.7 percent the same month, reports showed today. “Pessimism toward the global recovery is easing in line with a solid performance from bourses around the world,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Risk sentiment is returning, so investors are selling safe-haven currencies such as the yen and the dollar.” The yen slipped 0.3 percent to 77.74 per Australian dollar, and declined 0.5 percent to 62.99 versus the so-called kiwi. Activity ‘Strengthening’ The Canadian dollar strengthened 0.8 percent versus its U.S. counterpart to C$1.0339 after Statistics Canada in Ottawa said employment rose by 93,200 in June. That followed gains of 24,700 in May and April’s record 108,700. The euro was poised for the biggest weekly gain versus the yen in three months after European Central Bank President Jean- Claude Trichet said at a press conference in Frankfurt yesterday that “indicators suggest that a strengthening in economic activity took place during the spring.” The ECB’s main interest rate is at an “appropriate” level, and inflation expectations “remain firmly anchored,” he also said. “A weak euro is likely to soothe the pain of the euro-zone economy, which will feel the pinch from fiscal consolidation,” said Masaru Hamasaki, chief strategist in Tokyo at Toyota Asset Management Co., which oversees the equivalent of $15 billion. “If the market came to realize this benefit, the euro may regain some lost confidence.” The euro was boosted this week on speculation stress tests for European banks assumed 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. ‘Strong Belief’ “There is strong belief that stress tests will help ease concerns about the health of the banking system in Europe,” said Tomohiro Nishida, a Tokyo-based foreign-currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh- largest banking group. “If this is the case, this will benefit the euro.” The won climbed to a two-week high after the Bank of Korea raised its seven-day repurchase rate to 2.25 percent from a record low 2 percent. An increase was forecast by just four of 14 economists surveyed by Bloomberg. “Risk sentiment has improved over the last couple of days because of the recovery in stock markets,” said Thio Chin Loo, a senior currency strategist at BNP Paribas SA in Singapore. The BOK’s decision “further reinforces that Asia is kind of moving to a different drumbeat.” ‘Undervalued’ Yuan The International Monetary Fund said three days ago that South Korea needs to gradually boost borrowing costs as monetary policy is currently “somewhat beyond what is necessary to support the recovery.” The won rose 1.1 percent to 1,195.85 per dollar after climbing to 1,194.93, the strongest since June 25. The Chinese yuan was little changed against the dollar after U.S. Treasury Secretary Timothy F. Geithner pledged to monitor what he called an “undervalued” currency in the next three months, seeking signs that China is meeting commitments to help rebalance the global economy. China took a “significant step” last month when it ended its peg to the dollar and allowed markets to drive the currency higher, the Treasury Department said yesterday. The report, initially due April 15, concluded that no major U.S. trading partner manipulated its currency, and said it’s not yet clear whether China’s policy shift will correct the yuan’s undervaluation. The Treasury promised another review in October. “What matters is how far and how fast the renminbi appreciates,” Geithner said, using another name for China’s currency. “We will closely and regularly monitor the appreciation of the renminbi and will continue to work towards expanded U.S. export opportunities in China that support employment in the United States, in close consultation with Congress.” The yuan strengthened 0.05 percent to 6.7730 per dollar.

Source