June 4 (Bloomberg) -- The euro rose against the dollar before a European Central Bank meeting at which policy makers may avoid cutting interest rates and expanding asset purchases. The yen fell versus the dollar and the euro as gains in stocks fueled appetite for higher-risk assets and a report showed Japanese investors increased purchases of overseas bonds to the most in a month. The Swedish krona traded near the lowest in six weeks against the euro on concern Latvia will devalue its currency. The ECB will neither reduce rates nor signal it will buy more covered bonds as the 16-nation economy shows signs of a recovery, economists said. “European equities and U.S. futures are heading higher, signaling risk appetite is once again picking up,” said Michael Klawitter, a foreign-exchange strategist in Frankfurt at Commerzbank AG. That’s “providing support for euro-dollar.” The euro rose 0.4 percent to $1.4223 as of 9:44 a.m. in London, bringing its advance since the beginning of May to 7.5 percent. The yen weakened 0.8 percent to 136.99 per euro, from 135.93 in New York yesterday. The Japanese currency slid to 96.32 per dollar from 95.99. The yen dropped versus 14 of the 16 most-traded currencies after Japan’s Ministry of Finance said domestic investors bought about $10.2 billion more overseas bonds than they sold last week. The Dow Jones Stoxx 600 Index of European shares added 0.8 percent, while the FTSE 100 Index of U.K. shares advanced 1 percent. Futures on the Standard & Poor’s 500 Index of U.S. shares rose 0.7 percent. Rising Appetite “Japanese investors are beginning to get an appetite for foreign investment, which is weighing on the yen,” said David Forrester, a strategist in Singapore at Barclays Capital, a unit of the U.K.’s third-biggest bank. “They will continue to increase their exporting of capital and we expect the yen to be one of the worst performers in the next six months.” The dollar strengthened against the yen after Fitch Ratings reiterated its confidence in the U.S. and U.K.’s top credit grades, citing the countries’ fiscal strength. “Our confidence in their ability and track record to do the right thing” makes the U.S. and the U.K. AAA-rated borrowers, David Riley, head of sovereign ratings at Fitch, said at a conference in Sydney today. The dollar completed the biggest weekly decline in two months versus the euro on May 22 after Pacific Investment Management Co.’s Bill Gross said the previous day that the U.S. will “eventually” lose its top credit rating. Standard & Poor’s that day lowered the outlook on Britain’s AAA grade to “negative,” citing the government’s deteriorating finances. ‘Removing Stumbling Block’ “The rating comments today helped remove a stumbling block on currencies such as the dollar and euro, which faced concerns over rating downgrades,” said Takeshi Makita, a Tokyo-based economist at Japan Research Institute Ltd., a unit of Japan’s third-largest lender, Sumitomo Mitsui Financial Group Inc. “These currencies may gain further momentum.” The pound rose against the dollar after a report by Halifax showed home values unexpectedly rose 2.6 percent in May, the most since 2002. The Bank of England, meeting today, will keep interest rates at 0.5 percent and refrain from increasing gilt purchases beyond the 125 billion pounds ($205 billion) already announced, according to economists. The Dollar Index fell, paring its biggest gain in more than four months yesterday, when Federal Reserve Chairman Ben S. Bernanke told the House Budget Committee in Washington the central bank won’t finance government spending over the long term. “Bernanke told Congress that the Fed won’t accommodate wider budget deficits by simply printing money, clearly attempting to reassure foreign investors worried about the U.S. dollar’s safe-haven status,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd. wrote in a research report. The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, slid 0.5 percent at 79.091, from 79.500 yesterday, when it climbed 1.4 percent, the biggest gain since Jan. 20.

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