The euro strengthened for a third day as draft guidelines showed planned changes to the euro- region’s bailout fund may open the door to increased credit lines for countries such as Italy and Spain. The shared currency reversed earlier losses after European Commission President Jose Barroso said a “positive outcome” was possible at an Oct. 23 meeting of European leaders in Brussels. The European Financial Stability Facility may be able to offer loans up to 10 percent of a member states’ gross domestic product, according to the document obtained by Bloomberg. The Dollar Index fell as U.S. stock futures rose, damping demand for safer assets. “The euro is strengthening in response to the latest headlines on the EFSF even though there was little new in them,” said Valentin Marinov, a foreign-exchange strategist at Citigroup Global Markets Ltd. in London. “It’s still fairly uncertain what’s going to come out on Sunday especially with regard to how they are going to leverage the EFSF, which is central to all the efforts to contain the crisis.” The euro advanced 0.3 percent to $1.3806 at 7:03 a.m. New York time, after falling as much as 0.6 percent. The 17-nation currency gained 0.4 percent to 106.08 yen. Japan’s currency was little changed at 76.83 per dollar. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, dropped 0.3 percent to 76.858. Act ‘Decisively’ Finance chiefs from the Group of 20 nations have urged Europe’s leaders to act “decisively” to resolve the debt crisis that has roiled international markets. The policy makers are searching for ways to maximize the firepower of their bailout fund as the crisis threatens to spread to the region’s larger economies. “We have been proposing the leveraging of the EFSF,” Barroso told a conference today in Brussels. “I hope this will be agreed on Sunday. I am encouraged by the work going on. I think a very positive outcome on Sunday is possible provided there is political will and a sense of compromise from all participants.” The euro fell earlier amid reports policy makers were divided over the role of the European Central Bank, which has rejected using its balance sheet to bolster the 440 billion-euro bailout fund. The difference of opinion emerged in Frankfurt, where officials including French President Nicolas Sarkozy and German Chancellor Angela Merkel were gathered to mark the end of Jean-Claude Trichet’s term as ECB president. ‘Lot of Volatility’ “There’s a lot of volatility in the market before the meeting this weekend,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The market is looking for anything to reinforce its hope that we are going to see a comprehensive plan that will help ease the tensions.” Investors should sell the euro versus the dollar, betting it will weaken to $1.33, according to Societe Generale SA. “While we believe that the euro will survive and that dollar weakness will ultimately trump everything leading euro- dollar much higher, the odds of a setback in the short term are significant,” Kit Juckes, London-based head of foreign-exchange research, wrote in an e-mailed report. “The odds that the euro zone does not come out with the goods at the right time is likely, given past experience.” Yen, Dollar The yen and dollar weakened against most of their major counterparts as the Stoxx Europe 600 Index pared losses to 0.4 percent, from as much as 1.5 percent, and futures on the Standard & Poor’s 500 Index gained 0.5 percent. The Federal Reserve Bank of Philadelphia’s general economic index improved to minus 9.6 in October from minus 17.5 last month, economists surveyed by Bloomberg predicted the report today will show. Demand for safety has seen the yen gain 12 percent versus a basket of nine of its developed-market peers over the past six months, according to Bloomberg Correlation-Weighted Indexes. The dollar has risen 3.4 percent. Japan will increase a fund to help companies cope with its strengthening currency, according to a document obtained from a ruling Democratic Party of Japan official. The fund will expand by about 25 percent to 10 trillion yen. “It’s a program that’s already been in place and doesn’t appear to have had too much impact in terms of stemming yen gains,” Deutsche Bank’s Horner said. “We continue to think that yen will strengthen and do not see the expanded measures as a major impediment to those gains.” To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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