By Ye Xie and Gavin Finch July 23 (Bloomberg) -- The yen and dollar fell against most major counterparts as U.S. stock-index futures advanced on speculation the worst of the recession may be over, prompting investors to purchase higher-yielding assets. Japan’s currency fell versus the Norwegian krone and Swedish krona as futures on the Standard & Poor’s 500 Index rose 0.5 percent and Japanese financial companies prepared to raise at least 700 billion yen ($7.42 billion) for funds that will invest in international assets. The pound traded near the highest level this month against the dollar. “We’re seeing high-yielding currencies still rallying along with stock markets,” said Geoffrey Yu, a currency strategist in London at UBS AG, the world’s second-largest foreign-exchange trader. “The market is reverting to business as usual. That’s just spurring risk currencies forward.” The yen fell 0.8 percent to 134.27 per euro at 8:35 a.m. in New York. It dropped 1.3 percent to 15.048 per Norwegian krone and slipped 1.3 percent to 12.498 per Swedish krona. The yen declined 0.8 percent to 94.40 versus the dollar. The dollar was little changed at $1.4231 per euro. Japanese financial institutions are encouraging investors to put money into mutual funds focused on assets denominated in currencies such as the Turkish lira, South African rand and Brazilian real, according to data compiled by Bloomberg. Japanese investors were net buyers of 709.4 billion yen of overseas assets in the week ended July 11, figures from the Finance Ministry showed last week. Japan’s Exports The yen also declined after the Finance Ministry said the contraction in the nation’s exports slowed to 35.7 percent in June from a year earlier, from 40.9 percent in May. The trade surplus widened to 508 billion yen, the ministry said. “Japan’s trade data provided hard evidence that the global economy is now on the mend,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “As risk sentiment improves on the back of receding wariness about the prospects of the global economy, the yen and the dollar will weaken against higher- yielding currencies.” The dollar was little changed versus the euro as the U.S. Labor Department said initial jobless claims increased to 554,000 in the week ended July 18 from a revised 524,000 in the prior week. The median forecast of 44 economists surveyed by Bloomberg News was for an advance to 557,000 from a previously reported 522,000. The yen fell versus New Zealand’s dollar as the difference in yields between three-year New Zealand and Japanese bonds reached 3.45 percentage points today, the widest level since June 26. The yen slid 1.1 percent to 62.36 against the kiwi. Benchmark Rates The benchmark interest rate is 0.1 percent in Japan, compared with 2.5 percent in New Zealand, 3 percent in Australia and 1.25 percent in Norway, encouraging Japanese investors to seek higher returns in those countries. The pound traded near the highest level this month against the dollar as U.K. retail sales increased a greater-than- forecast 1.2 percent last month and loan approvals for home purchases reached the highest level since March 2008. Britain’s currency rose as much as 0.3 percent to $1.6545 before trading 0.1 percent higher at $1.6510. Sterling was little changed at 86.13 pence per euro. HSBC raised its pound-dollar forecast for the end of 2010 to $1.75 after previously saying its “fair value” through next year was $1.60. Indonesia’s rupiah approached the highest level in six weeks after the International Monetary Fund forecast this month that developing economies in Asia will grow 7 percent next year from an estimated 5.5 percent in 2009. The MSCI Asia Pacific index of shares gained 0.4 percent, extending its advance to 9.1 percent since July 13. ‘More Appreciation’ “Asian currencies still have more appreciation to come,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. “As economic growth, capital flows, and risk appetite improve, all these factors will continue to play favorably for Asian currencies.” The rupiah gained 0.5 percent to 10,035 per dollar, and Malaysia’s ringgit advanced 0.4 percent to 3.5400. Investors should sell the yen against the rupiah because of factors such as “valuation” and “carry,” according to Goldman Sachs Group Inc. “Valuation suggests that the yen is overvalued, while the rupiah is undervalued,” analysts led by Jim O’Neill, the global head of economic research at Goldman Sachs in London, wrote in a report today. “The cross is carry positive by about 7 percent over 12 months.” Forward Contracts Goldman Sachs recommended investors use three-month forward contracts to sell the yen at 108.60 versus the rupiah, with a target of 100. They also advised placing a one-day stop-loss order on any close above 112 in the spot market. The yen declined 0.9 percent to 106.60 per rupiah. Forwards are agreements in which assets are bought and sold at a price specified before the transaction date. A stop-loss order is an automatic instruction to sell or buy a currency should it reach a particular level. To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

Source