The dollar, yen and Swiss franc advanced against most of their major counterparts as stocks extended a worldwide rout amid speculation European banks lack sufficient capital, boosting demand for safer assets. The euro slid for a fourth day versus the yen as traders bet that the European Central Bank will cut its benchmark rate. Australia’s dollar fell as Citigroup Inc. cut forecasts for U.S. growth amid concern about a global slowdown, damping demand for higher-yielding assets. The won led declines among Asian currencies after South Korea’s financial regulator urged insurers to boost capital in preparation for a potential crisis. “There are waves of negatives washing across the markets,” said Jeremy Stretch, executive director of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London. “Growth concerns, bank funding fears and question marks over euro-zone bonds are catalysts for market moves that benefit the usual safe-haven currencies, such as the dollar, yen and franc.” The dollar advanced to $1.4300 per euro as of 8:34 a.m. in London from $1.4333 in New York yesterday. The U.S. currency bought 76.43 yen from 76.58, after earlier rising as high as 76.95. The yen appreciated to 109.24 per euro from 109.76 yesterday. The Swiss franc climbed against all its 16 major counterparts and traded at 1.1278 per euro from 1.1380. For the week, the U.S. currency is set for a 0.3 percent loss against the euro and a 0.4 percent drop against the yen. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies including the euro, yen and pound, added 0.1 percent to 74.335. The index yesterday gained 0.8 percent, its biggest advance since Aug. 4. Equity Rout The MSCI Asia Pacific Index slid 3.1 percent while Europe’s Stoxx 600 fell 1.3 percent in London. The Standard & Poor’s 500 Index tumbled 4.5 percent yesterday in New York and Treasury yields tumbled to record lows 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. “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.” ‘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. A Credit Suisse AG index based on swaps showed wagers that the ECB’s key interest rate will fall by 30 basis points over the next 12 months. 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, analysts Steven Wieting and Shawn Snyder 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 Australian dollar weakened 0.6 percent $1.0333 and it slid 0.8 percent to 78.92 yen. The yen briefly weakened against the greenback as Japan’s Finance Minister Yoshihiko Noda signaled he’s ready to make another “surprise” intervention in markets to curb currency gains. Noda said yesterday he would “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 that 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. Yen, Won “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 led declines in Asian currencies after South Korea’s financial regulator urged insurers to boost capital in preparation for a potential crisis. 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 1.5 percent to 1,087.55 per dollar. To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net

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