The euro advanced for a second straight day versus the dollar and yen on optimism European leaders will reach an agreement at a summit this weekend to bolster the region’s bailout fund. The 17-nation currency pared gains as fluctuating U.S. stocks discouraged demand for higher-yielding assets. South Korea’s won rose versus the dollar after Japan and South Korea agreed to increase a currency swap accord to protect them from funding shocks related to European debt turmoil. “There’s a lot of anticipatory euro buying,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York. “The market is coming to a consensus that there is something they are clearly working on and are probably going to deliver at the euro summit.” The euro appreciated 0.3 percent to $1.3797 at 10:16 a.m. in New York, after rising 0.9 percent earlier today. The European currency advanced 0.2 percent to 105.87 yen. The yen gained 0.1 percent to 76.71 per dollar. The Standard & Poor’s 500 Index was little changed as Apple Inc. missed analysts’ predictions for the first time in at least six years, overshadowing a report showing an increase in U.S. housing starts. Sterling rose for the first time in three days, advancing 0.7 percent to $1.5826, on speculation a resolution to Europe’s debt crisis will help boost Britain’s economy. Bank of England Bank of England policy makers voted unanimously to expand the size of their asset-purchase stimulus this month, according to minutes of their Oct. 6 meeting released today. Strains related to Europe’s debt crisis created a “compelling” case to add to the program, according to the minutes. South Korea’s won advanced to a four-week high after President Lee Myung Bak and Japanese Prime Minister Yoshihiko Noda agreed to increase a currency-swap accord by more than fivefold to $70 billion amid European debt turmoil. “The move strengthens our positive relative value view towards the Korean won against most other regional currencies and should also be supportive of Korean assets in general,” Ilan Solot, an emerging-markets strategist at Brown Brothers Harriman & Co. in London, wrote in a note to clients. The won climbed 1.2 percent to 1,132.30 per dollar after touching 1,128.53, the strongest level since Sept. 19. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, dropped 0.4 percent to 76.828 after earlier falling 0.7 percent. U.S. Housing Starts Builders began work on 658,000 houses at an annual rate, up 15 percent from August and the most since April 2010, Commerce Department figures showed. The euro rose versus the dollar as Steffen Seibert, German Chancellor Angela Merkel’s chief spokesman, cited “intensive talks” on bolstering the rescue fund. He declined in an interview to comment on a report in the Guardian that Germany and France have agreed to increase the 440-billion euro ($609 billion) fund to 2 trillion euros. Financial Times Deutschland reported without saying where it obtained the information that German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that the firepower of the EFSF may be increased to a maximum of 1 trillion euros through an insurance model. Merkel said yesterday that the European summit will mark an important step, though not the final one, in solving the sovereign debt crisis. ‘Halfway Credible’ “The euro is back on the highs,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “The market is continuing to travel optimistically. For the moment, it’s giving the benefit of the doubt to euro-zone policy makers that they’re going to come up with something that is at least halfway credible.” The currency fell earlier after Moody’s Investors Service cut Spain’s credit ranking yesterday by two levels to A1 from Aa2. The company cited the “continued vulnerability of Spain to market stress” that is driving up the cost of borrowing, as well as weaker growth prospects. Japan’s currency pared its gain yesterday after the Nikkei newspaper reported that the government and central bank will form a team of senior officials to address the strong yen. The opposition Liberal Democratic Party urged the government this month to step up currency-market intervention to counter the yen’s appreciation. The yen depreciated 0.2 percent today against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes. It has risen 11 percent over the past six months, the indexes show. Japan’s currency rallied to a post-World War II high of 75.95 against the dollar in August, making the nation’s exports more expensive. It gained even after the government intervened in the currency market for the third time in the past year, selling the yen in an effort to curb its appreciation. To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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