The dollar rose against most of its major peers after an election loss for Germany’s ruling party stoked concern that support will fade for bailouts of the euro area’s indebted states, supporting demand for refuge currencies. The euro slid to a three-week low versus the yen after German Chancellor Angela Merkel failed to sway voters in her home state with a campaign based on her handling of the region’s debt crisis. The Swiss franc climbed for a fourth day gain against the euro as Asian shares extended a global rout and before U.S. data that may show service-sector growth slowed. “The U.S. economy is sluggish, the European debt concern is not going away in a hurry, so market sentiment is not going to improve for a very long time,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland, New Zealand. “This week is certainly a risk-off scenario,” increasing demand for the U.S. dollar and the franc, he said. The dollar rose to $1.4137 per euro, the highest since Aug. 11, before trading at $1.4161 as of 6:38 a.m. in London from $1.4205 in New York on Sept. 2. It was at 76.71 yen from 76.80. The Swiss franc advanced to 1.1164 per euro from 1.1201. The euro sank 0.5 percent to 108.62 yen after touching 108.59, a level not seen since Aug. 12. The MSCI Asia Pacific Index of regional shares slumped 2.6 percent. The Standard & Poor’s 500 Index and Stoxx Europe 600 Index lost more than 2 percent on Sept. 2. Merkel Loss The Social Democrats, Germany’s main opposition party, took 36.1 percent to win yesterday’s election in Mecklenburg-Western Pomerania, while Merkel’s Christian Democratic Union had 23.3 percent, ZDF television projections showed. The result in the eastern state where Merkel’s election district is located means her national coalition has been defeated or lost votes in all six German state elections so far this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts. The nation’s top constitutional court will rule on Sept. 7 in three cases challenging the country’s participation in a bailout for Greece and the euro-area rescue fund. “Merkel’s CDU got beat in her home state, adding to the sense that opposition to any solution to a deepening crisis is growing,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in an e-mailed note. Rate Outlook European Central Bank President Jean-Claude Trichet is scheduled to speak in Paris today before the ECB’s policy meeting on Sept. 8. While all the 57 economists surveyed by Bloomberg expect the central bank to leave its benchmark interest rate unchanged at 1.5 percent, traders bet it will cut rates by 26 basis points over the next 12 months, according to a Credit Suisse Group AG index based on swaps. “If the ECB takes away the tightening bias, it’s going to take away some support out of the euro,” ANZ’s Sinton said. “You would see the euro moving down to the $1.4010 area.” The Institute for Supply Management’s non-manufacturing index for the U.S. fell to 51 last month, the lowest since January 2010, from 52.7 in July, according to the median forecast of economists in a Bloomberg News survey before the data’s release tomorrow. A reading of 50 is the dividing line between expansion and contraction. ‘Hopelessly Optimistic’ Labor Department data on Sept. 2 showed that U.S. payrolls were unchanged in August, the weakest reading since September 2010. Economists had estimated a gain of 68,000. President Barack Obama is scheduled to outline his plans to spur the economy in a Sept. 8 address to Congress. “The market went into payrolls hopelessly optimistic and that optimism wasn’t rewarded,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “Developments in Europe justify further risk aversion.” The yen held losses from the past two weeks versus the dollar after newly appointed Japanese Finance Minister Jun Azumi said yesterday that the government is ready to take decisive action against speculative moves in the foreign-exchange markets. Azumi said he will take the same kind of steps as Prime Minister Yoshihiko Noda, who as finance minister oversaw three currency-market interventions in the past 12 months, including a coordinated action by Group of Seven nations in March. “We are concerned about persistent one-sided gains in the yen,” Azumi said on public broadcaster NHK’s “Sunday Debate” program. “I will tell the G-7 that a strengthening yen may slow Japan’s economic growth.” The G-7 nations’ finance ministers and central bankers are scheduled to meet in Marseilles, France, this week. To contact the reporters for this story: Masaki Kondo in Singapore at mkondo3@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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