By Masaki Kondo and Ron Harui Aug. 11 (Bloomberg) -- The yen rose to a more than two-week high against the euro and the dollar gained as signs the global economic recovery is waning boosted demand for safer assets. The yen strengthened versus all 16 major counterparts after the Federal Reserve said the U.S. recovery will be slower than expected. Reports today showed U.K. consumer confidence dropped and Japan’s machine orders rose less than analysts forecast. Australia’s dollar weakened for a third day against the greenback after China said industrial output grew at the slowest pace in 11 months, spurring investors to sell higher-yielding assets. “There are worries that U.S. growth is slowing further and this may adversely affect other economies in the near future,” said Yoh Nihei, a Tokyo-based trading group manager at Tokai Tokyo Securities Co. “Risk aversion is prevailing, with the bias for the yen to be bought. There also seems to be some covering of dollar shorts.” A short position is a bet an asset will decline. The yen appreciated to 111.12 per euro at 8:20 a.m. in London, from 112.58 in New York yesterday, after rising to 111.07, the strongest since July 22. The dollar gained to $1.3045 per euro, from $1.3177, and advanced 0.5 percent to $1.5782 against the pound. The yen strengthened to 85.13 per dollar, from 85.44. ‘More Modest’ The Fed said in its policy statement yesterday “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.” The central bank left the overnight interbank lending rate target in a range of zero to 0.25 percent, where it’s been since December 2008. A U.K. consumer confidence index slumped 7 points to 56 in July, the lowest since April 2009, Nationwide Building Society said in an e-mailed statement. Japan’s machinery orders, an indicator of business investment in three to six months, rose 1.6 percent in June, the Cabinet Office said, less than the 5.4 percent gain forecast by economists surveyed by Bloomberg News. The MSCI Asia Pacific Index of shares dropped for a third day, losing 1.6 percent. The Aussie dollar fell against most of its major peers after China said factory output, retail sales and new lending for investment in fixed assets all slowed, adding to evidence growth is ebbing in the South Pacific nation’s largest trading partner. “With the outlook for the U.S. and Chinese economies becoming uncertain, growth-sensitive currencies are unlikely to draw strong buying interest,” said Hiroshi Higa, senior strategist in Tokyo at MoneySquare Japan Inc., an online currency trading company. U.K. Inflation Australia’s dollar fell 1.2 percent to 90.29 U.S. cents, and dropped 1.5 percent to 76.87 yen. The pound declined for a third day against the dollar as most economists surveyed by Bloomberg said the Bank of England will lower its forecasts for 2011 economic growth in its quarterly inflation report today. Two of the 16 economists said the central bank will also cut its forecast for 2010, with 10 predicting no change and four expecting an increase. The central bank will also publish new inflation forecasts. “Today’s BOE inflation report should confirm the grim outlook on the U.K.,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a research note yesterday. “We maintain our bullish euro-sterling view and our bearish pound-dollar view.” South Korea’s won dropped for a second day after the government reported the highest unemployment since April, damping speculation the central bank will add to last month’s interest-rate increase. The jobless rate rose to 3.7 percent in July from 3.5 percent the previous month, the government said. “There’s a possibility the central bank may not move rates tomorrow,” said Ha Joon Woo, a currency dealer at Daegu Bank in Seoul. “We’re also seeing less aggressive play after the Fed said it will keep rates close to zero.” The won declined 1.2 percent to 1,182.50 per dollar, after sliding 0.7 percent yesterday. To contact the reporters on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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