The euro rose toward a one-week high versus the dollar amid speculation German lawmakers will approve the expansion of a bailout fund for debt-stricken euro- area nations to help contain the sovereign-debt crisis. The 17-nation currency strengthened against 12 of its 16 major counterparts as German Chancellor Angela Merkel attempts to win the backing of her coalition to expand the powers of the European Financial Stability Facility. The yen weakened as Asian stocks reversed losses, spurring demand for higher-yielding assets. South Korea’s won declined after the nation’s current- account surplus shrank. “The German talk about the euro zone is becoming a bit more positive, which reduces the risk of a disorderly breakup,” said Adrian Schmidt, a currency strategist at Lloyds Bank Corporate Markets in London. “The ratification of the EFSF by Germany should be routine and that suggests an upside bias for the euro.” The euro gained 0.9 percent to $1.3667 at 9:25 a.m. in London after rising to $1.3690 yesterday, the strongest since Sept. 21. The currency appreciated 0.7 percent to 104.50 yen. The yen rose 0.2 percent to 76.47 per dollar. Lloyds’s Schmidt said he is “generally more positive” on the euro and estimates the currency will end 2011 at about $1.40. It may still “suffer a dip” to as low as $1.32 before year-end, he said. ‘Enough Votes’ The vote in Berlin on changes to the EFSF would allow the fund to buy the bonds of distressed member states and offer emergency loans to governments, raising Germany’s guarantees to 211 billion euros from 123 billion euros. The main opposition Social Democrats and Greens have said they will vote with Merkel’s government, assuring passage. “The main thing for the market today is the EFSF vote in Germany,” said Chris Walker, a foreign-exchange strategist at UBS AG in London. “It’s widely expected that the vote will pass and that’s squeezing the euro up a bit.” The euro will probably give up gains to trade at about $1.30 by year-end as a probable Greek default weighs on the shared currency, said Walker. The euro’s 14-day relative strength index versus the dollar fell to 35 yesterday, nearing the 30-level that some traders see as signaling an asset has fallen too rapidly and may be about to reverse direction. Greek Default About 93 percent of investors expect Greece to eventually default, according to the quarterly Global Poll of 1,031 Bloomberg subscribers. Forty percent see the currency bloc losing at least one member in the next year. Three-quarters of those questioned this week said the euro- area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds. Europe’s benchmark Stoxx Europe 600 Index of shares rose 0.3 percent, reversing an earlier decline of as much as 0.7 percent. Gains in the euro were tempered before Italy auctions as much as 9 billion euros of debt today. Italy’s five-year credit-default swaps were at 462.5 basis points yesterday, showing traders see a 34 percent chance for the nation’s nonpayment, compared with 4.6 percent for the U.S. Kokusai Global Sovereign Open, Japan’s biggest mutual fund by assets, reduced its holdings of Italian bonds to 7.5 percent of its 2.1 trillion-yen portfolio from 12.3 percent in July, a report for customers of the fund showed on Sept. 26. The asset manager “considered the possibility that Europe’s debt problems will last longer,” according to the report. Asian Shares Gain The yen weakened against most of its major peers as the MSCI Asia Pacific Index of shares rose 0.5 percent, reversing a decline of as much as 1.3 percent. Japan’s currency earlier rose versus the euro amid speculation the nation’s exporters were repatriating overseas earnings at the fiscal half-year end. “There will probably be buying of the yen by Japanese exporters at the end of the first half,” said Yuki Sakasai, a currency strategist at Barclays Capital in New York. “It may weigh on cross currencies and the dollar against the yen.” The yen has gained 12 percent in the past three months, the best performer among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. Europe’s debt crisis continues to be a drag on the U.S. economy, President Barack Obama said yesterday. “In Europe, we haven’t seen them deal with their banking system and their financial system as effectively as they needed to,” he said. U.S. Economy The U.S. economy expanded at a 1.2 percent annual rate in the second quarter, revised figures from the Commerce Department may show today, according to a Bloomberg News survey of economists. While that compares with the 1 percent pace reported last month, it’s less than a third of the growth a year earlier. The won snapped a two-day gain versus the dollar after a report showed the current-account surplus shrank in August, dimming the nation’s growth outlook. The gap was $401.3 million compared with a revised $3.77 billion in July, the Bank of Korea said today. “The narrowing of the current-account surplus was expected in the market and points to a bleak outlook for the Korean economy,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul. The won fell 0.3 percent to 1,173.70 per dollar. To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net; To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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