By Ron Harui July 20 (Bloomberg) -- The yen and the dollar fell against higher-yielding currencies as stocks gained before a U.S. report that economists said will show an index of leading economic indicators rose, damping demand for safer assets. Japan’s currency dropped the most against the South Korean won and the South African rand on speculation commercial lender CIT Group Inc. is moving closer to avoiding bankruptcy and as more U.S. companies prepared to report their second-quarter earnings this week. The euro advanced to a two-week high against the dollar before a French report this week that may show consumer spending rebounded last month, signaling the worst of the global recession is over. “A lot of indicators are showing improvement,” said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. “The earnings reporting season in the U.S. has gotten off to a fairly solid start. If that trend continues, we’ll see risk appetite to continue to come back. We can expect both the Aussie and the kiwi to outperform the yen.” The yen declined to 134.10 per euro as of 7:40 a.m. in London from 132.85 in New York last week, after earlier dropping to 134.34, matching its low on July 6. The dollar fell to $1.4160 per euro from $1.4102, after slipping to $1.4181, the weakest level since July 1. Japan’s currency slid to 94.75 versus the dollar from 94.19. Leading Indicators The yen weakened versus all 16 major currencies before the U.S. Conference Board releases its index of leading economic indicators today. The gauge, which points to the direction of the world’s largest economy over the next three to six months, rose 0.5 percent in June, after a 1.2 percent increase in May, according to a Bloomberg News survey of economists. French consumer spending climbed 0.3 percent in June from the previous month, when it fell 0.2 percent, a separate Bloomberg survey showed. The national statistics office will publish the report on July 22. Higher-yielding currencies advanced as Asian stocks rose for a fifth day, boosting demand or riskier assets. The MSCI Asia-Pacific excluding Japan Index climbed 2.4 percent, extending its gains during the past week to 11.5 percent. The New Zealand dollar strengthened 0.6 percent to 64.87 U.S. cents and advanced 1.2 percent to 61.45 yen. Australia’s dollar rose 0.6 percent to 80.75 cents and gained 1.2 percent to 76.49 yen. Benchmark interest rates are 2.5 percent in New Zealand and 3 percent in Australia, compared with 0.1 percent in Japan and as a low as zero in the U.S., making the South Pacific nations’ assets attractive to investors. ‘Push Higher’ “The seeming stability in equities is encouraging demand for higher-yielding commodity currencies,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. “It would not surprise me to see these currencies push higher this week.” The Korean won climbed to a five-week high against the dollar after Morgan Stanley raised its target for the nation’s benchmark stock index. The Kospi index may rise to 1,650 in the next 12 months from 1,478.51 today, Morgan said in a report, citing a positive earnings outlook for exporters. The won gained 0.7 percent to close at 1,250.10 per dollar after touching 1,249.30, the strongest since June 12. Foreign-exchange movements may be volatile in Asia as a national holiday in Japan reduces liquidity, said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. U.S. Earnings The yen and dollar also weakened before U.S. companies such as State Street Corp. report their earnings this week. Standard & Poor’s 500 firms that have announced results since July 8 topped estimates by 16 percent, according to data compiled by Bloomberg. Thirty out of 38 beat projections. The Dollar Index fell toward a six-week low on speculation New York-based CIT Group will reach a deal with bondholders to secure $3 billion in financing and avoid collapse. The company said last week it would probably fail to get a second federal bailout following a $2.33 billion loan in December. CIT’s board is scheduled to meet today to discuss the bridge-financing offer, which would give the company time to restructure its debt outside of bankruptcy, according to a person briefed on the firm’s deliberations. “The news has led to a rally in risk, which may continue in Asia trading today,” analysts led by David Woo, London-based global head of foreign-exchange strategy at Barclays Capital, wrote in a research note today. “We will remain long carry for the week ahead,” referring to bets on higher-yielding currencies. Futures Trading Futures traders increased bets to the highest level in five months that the yen will strengthen against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed on July 17. The difference in the number of wagers by hedge funds and other large speculators on a gain in the yen compared with those on a drop -- so-called net longs -- reached 33,567 on July 14, the most since February, versus net longs of 17,117 a week earlier. The figures are sometimes used as a contrary indicator. The Dollar Index, which the ICE uses to track the currency against those of six major U.S. trading partners, fell 0.1 percent to 79.267. The index dropped to 79.131 on July 16, the lowest since June 4. To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net.

Source