Asian currencies strengthened, led by the Singapore dollar and China’s yuan, on speculation global funds will shift more cash into non-dollar assets after the U.S. lost its top credit rating at Standard & Poor’s. The yuan climbed to a 17-year high after the central bank strengthened its reference rate for the currency by the most this year, while Singapore’s dollar gained the most in a week and. Government bonds advanced in India and China as the MSCI Asia Pacific Index of stocks slumped 2.4 percent, after a 7.8 percent slide last week that marked its worst performance since October 2008. Group of Seven policy makers vowed to take “all necessary measures” to support financial stability and growth after S&P cut America’s AAA rating by one level to AA+ on Aug. 5, citing the failure of the political process to address the budget deficit. The downgrade has no immediate impact on the creditworthiness of Asia-Pacific governments and companies, the rating company said in a statement today. “It’s the weak U.S. dollar which is mainly setting the trend for the regional currencies,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “With stock markets slumping, money flows into bonds, which is also supportive of the currencies.” The Singapore dollar climbed 0.4 percent to S$1.2143 versus the greenback as of 4:22 p.m. local time, according to data compiled by Bloomberg. The yuan gained 0.07 percent to 6.436 per dollar while the Thai baht advanced 0.2 percent to 29.81. Large Reserves Emerging markets may attract funds as they have relatively large foreign-exchange reserves and low debt-to-GDP ratios compared to developed nations, according to Templeton Asset Management Ltd.’s Mark Mobius. China has the world’s largest foreign reserves, totaling $3.2 trillion at the end of June, while Taiwan, South Korea and Hong Kong together have about $1 trillion. “This improved ability to manage their currencies and historically better ability to service debt is why we believe emerging-market currencies have been so strong - and may continue to be,” Mobius, who oversees about $50 billion as executive chairman of Templeton’s emerging markets group, wrote today in comments posted on the group’s website. Global funds ploughed more than $1 billion into emerging- market bond funds in the week to Aug. 2, with those focused on local-currency notes recording their best inflows in more than a year, EPFR Global said in an Aug. 5 statement. Singapore has the top rating from S&P, Moody’s Investors Service and Fitch Ratings. Bonds Gain China’s 3.99 percent note due June 2021 climbed, pushing their yield four basis points lower to a three-week low of 4.02 percent. India’s 7.8 percent note due April 2021 rallied for a fifth day, pushing its yield down by seven basis points to a seven-week low of 8.24 percent. A basis point is 0.01 percentage point. “Investors expect policy interventions to preempt any free-fall in financial markets,” said James Zhao, chief investment officer in the international investment department of CCB Principal Asset Management Co. in Beijing. “These include the speculated QE3, Europe debt consolidation and possibly a moderation in China’s monetary and fiscal tightening after inflation pressure peaked.” Market Interventions The European Central Bank said yesterday it will “actively implement” its bond-purchase program to prevent a debt crisis from spreading in the euro zone. Italian and Spanish 10-year yields both reached euro-era records last week, while Greece, Ireland and Portugal have received bailouts from the European Union and International Monetary Fund. Concern about the safety of U.S. and European assets may spur transfers of funds to Asia. South Korean Vice Finance Minister Yim Jong Yong said yesterday authorities will monitor capital flows and the exchange rate and take prompt action when necessary. The Philippine central bank will stem “excessive volatilities” in the foreign-exchange market and “speed up” reform of the non-deliverable forwards market, Governor Amando Tetangco said in an email today. South Korea’s won weakened 1.5 percent to 1,083.23 per dollar, its biggest loss since November. The currency touched a three-year high of 1,048.30 on July 27. The Philippine peso advanced 0.2 percent to 42.495, snapping a four-day losing streak. Yuan Fixing China’s yuan closed 0.07 percent stronger at 6.4360, after earlier climbing as much as 0.24 percent to a 17-year high of 6.4250. The People’s Bank of China fixed the reference rate 0.23 percent stronger at 6.4305 per dollar, the biggest advance since November. The currency is allowed to trade up to 0.5 percent on either side of the official rate. “China may accept faster yuan appreciation as the downside of holding U.S. dollar assets is greater than that of slower export growth,” said Dariusz Kowalczyk, a Hong Kong-based senior strategist at Credit Agricole SA. China buys dollars to limit appreciation as capital flows into its economy, which has averaged 10 percent growth for the past five years. The nation is the biggest foreign owner of Treasuries, holding $1.16 trillion of the securities as of May, U.S. Treasury Department data show. Elsewhere, the Indonesian rupiah advanced 0.3 percent against its U.S. counterpart to 8,548 and the Taiwan dollar rose 0.1 percent to NT$29.008. Malaysia’s ringgit fell 0.1 percent to 3.0185, reversing a 0.6 percent rally. India’s rupee weakened 0.4 percent to 44.925. To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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