The dollar and yen advanced against most of their major counterparts as Asian stocks extended a worldwide rout in equities amid speculation European banks lack sufficient capital. Australia’s dollar fell after Citigroup Inc. cut forecasts for U.S. growth amid concern about a global economic slowdown, damping demand for higher-yielding assets. The euro slid for a fourth day versus the yen before data forecast to show German producer-price inflation slowed in July. The won led declines in Asian currencies after South Korea’s financial regulator urged insurers to boost capital in preparation for a potential crisis. “The situation in Europe seems to be deteriorating by the day,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “If we do see an escalation and people start focusing again on credit markets like they did in 2008, the dollar will be back in vogue against the risk currencies.” The dollar advanced to $1.4304 per euro as of 1:41 p.m. in Tokyo from $1.4333 in New York yesterday. The greenback gained to $1.0355 per Australian dollar from $1.0391. The U.S. currency bought 76.50 yen from 76.58, after earlier gaining to 76.95. The yen rose to 109.46 per euro from 109.76 yesterday. For the week, the U.S. currency is set for a 0.4 percent loss against the euro and a 0.3 percent drop against the yen. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies including the euro, yen and pound, was at 74.320 from 74.254. It yesterday gained 0.8 percent, the biggest advance since Aug. 4. Equity Rout The MSCI Asia Pacific Index slid 2.7 percent after the Standard & Poor’s 500 Index tumbled 4.5 percent yesterday. Treasury yields tumbled to record lows in New York as investors sought the safest assets. The Wall Street Journal reported yesterday that U.S. regulators are stepping up scrutiny of local operations for Europe’s largest banks on concern the euro-region debt crisis may lead to funding problems. The New York Federal Reserve has been holding talks with the lenders and sought information about their access to funds, the newspaper said, citing people it didn’t identify. Fed Bank of New York President William C. Dudley said yesterday that the central bank always keeps an eye on the performance of U.S. and foreign banks, not monitoring one group more than the other. ‘Risk-Off Mood’ “The risk-off mood we saw in the U.S. and Europe will unfortunately continue through Asia, and the interest-rate market across the region will rally aggressively,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “Every market will fall.” Rennie recommended buying the dollar versus a basket of major currencies. The Australian dollar depreciated for a second day against its U.S. counterpart as Asian shares extended a global slump amid signs of a slowing economy. German producer prices probably rose 5.3 percent from a year earlier after increasing an annual 5.6 percent in June, the Federal Statistics Office in Wiesbaden is forecast to say according to economists surveyed by Bloomberg News. In the month, prices likely rose 0.1 percent, the poll showed. Citigroup cut its 2011 gross domestic product growth forecast for the U.S. to 1.6 percent from 1.7 percent and lowered its 2012 GDP growth estimate to 2.1 percent from 2.7 percent, Steven Wieting and Shawn Snyder, analysts at Citigroup, wrote in a report dated yesterday. Slowing Economy “We’re going to see another soft session today,” said Thomas Averill, a director in Sydney at Rochford Capital, a currency and interest-rate risk management company. “We saw quite a significant spike in risk aversion overnight. I expect the Aussie to trade softly through today.” The yen briefly weakened against the greenback as Finance Minister Yoshihiko Noda signaled he’s ready to do another “surprise” intervention in markets to curb gains the currency. Noda said yesterday he “will keep monitoring markets carefully” and that intervention “is a measure of last resort -- it would be meaningless if it were not a surprise.” He also said today Japan’s government may include measures to help companies cope with a stronger yen in its third earthquake relief package. Japan intervened in currency markets on Aug. 4 to weaken the yen, the third time it has done so in the past 12 months. “The market gets very nervous when the yen nears the record level, which perhaps led to some selling of the yen,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “We’ve got a sense that Noda is seriously intending to halt the yen’s advance.” The won fell for a third day as South Korea’s Financial Supervisory Service Governor Kwon Hyouk Se asked chief executives of insurance companies to refrain from paying dividends. The won declined 0.8 percent to 1,082.38 per dollar. To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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