By Ye Xie and Gavin Finch July 22 (Bloomberg) -- The yen advanced against the euro for a second day and the dollar gained as U.S. stock-index futures slid, boosting demand for a refuge. Japan’s currency rose versus the Australian dollar and pound after Morgan Stanley reported a bigger second-quarter loss than analysts expected. The pound dropped versus the U.S. dollar after a research group said the U.K. house-price slump will persist until 2012. “The stock market is still the barometer for risk,” said Alan Ruskin, head of international currency strategy in North America at RBS Securities Inc. in Greenwich, Connecticut. “Strategically, there’s an opportunity to sell the upside of the euro-dollar. The currency market has already priced in good news quite aggressively.” The yen strengthened 0.8 percent to 132.26 per euro at 8:59 a.m. in New York, from 133.36 yesterday, when it gained 0.5 percent. The dollar appreciated 0.3 percent to $1.4181 versus the euro from $1.4226. The yen climbed 0.5 percent to 93.31 against the dollar from 93.74. Japan’s currency gained versus most of its 16 most-traded counterparts tracked by Bloomberg, increasing 1.2 percent to 75.83 versus the Australian dollar and gaining 1.1 percent to 61.01 against New Zealand’s currency on speculation investors will reduce holdings of higher-yielding assets. Japan’s target lending rate of 0.1 percent compares with 3 percent in Australia and 2.5 percent in New Zealand. Futures on the Standard & Poor’s 500 Index expiring in September fell 0.8 percent, indicating the index may drop from the highest level since November. Barclays and RBS Barclays Plc will need another 12.8 billion pounds ($20.9 billion) and Royal Bank of Scotland Group Plc will require an additional 8.5 billion pounds to expand under new regulatory rules, reported Britain’s Daily Telegraph, citing an analyst at JPMorgan Securities Ltd. Morgan Stanley reported a loss as costs to repay the U.S. government and charges from an improvement in the firm’s own debt overwhelmed revenue. “The market is pressing the ‘risk off’ button today,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London, wrote in a report. There is a “crowded camp of gloom-monger analysts,” he said. The pound dropped 0.3 percent to $1.6404 after the National Institute of Economic and Social Research said today that home values will resume their decline because recent gains were driven by a lack of available homes. U.K.’s GDP The institute predicted gross domestic product will shrink 0.4 percent in the second quarter. The median forecast of 32 economists surveyed by Bloomberg News is for a 0.3 percent drop. The Office for National Statistics will release data July 24. “All of this is not good news for Britain,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This is leading to selling of the pound.” The pound dropped 0.8 percent 153.01 yen and slid 0.1 percent to 86.52 pence versus the euro. Sterling pared declines after minutes of the Bank of England’s July 9 rate-setting meeting showed policy makers voted unanimously against boosting asset purchases. The nine-member Monetary Policy Committee, led by Governor Mervyn King, kept the benchmark interest rate at 0.5 percent and said they will review the scope of its money printing in light of new economic forecasts in August, minutes released by the bank today in London said. The Swiss franc’s strength may be of growing concern to the nation’s central bank, according to RBC Capital Markets. “With the nominal effective exchange rate extending through the top of the prevailing range since the Swiss National Bank’s last intervention effort, we expect franc strength could finally be coming back onto the SNB’s radar,” Sue Trinh, a senior currency strategist in Sydney, wrote today in a report. “Dollar- franc has important support at 1.0600-1.0625, coinciding with yesterday’s lows, and euro-franc has important near-term support at 1.5100-1.5125.” The franc dropped 0.3 percent to 1.0693 against the dollar and was little changed at 1.5169 per euro. To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

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