July 31 (Bloomberg) -- The dollar and the yen fell for a second day against the euro as investors sought higher-yielding currencies before a U.S. government report forecast to show the contraction in the world’s largest economy slowed. The U.S. currency headed for a fifth month of declines against the pound, its longest run in five years, after a U.K. report showed consumer confidence held at the highest level since April 2008, adding to signs Britain is emerging from the recession. The yen was poised for a third weekly drop against Australia’s dollar as global stocks advanced, spurring investors to buy higher-yielding assets. “A good GDP number could boost risk assets again,” said Werner Eppacher, head of foreign exchange at DWS Investment GmbH in Frankfurt. “Prices have already priced in a lot of good news, so it’s a lot more important what market participants assume for the next quarters.” The dollar fell to $1.4112 per euro as of 9:02 a.m. in London, from $1.4075 yesterday, and was at 95.60 yen from 95.56 yen. The Japanese currency weakened to 134.94 against the euro, from 134.49. The dollar traded at C$1.0812, from C$1.0834. It reached C$1.0750 on July 28, the lowest level since Oct. 3. Eppacher recommended buying the U.S. dollar versus its Canadian counterpart, because the “fair value is around C$1.14 or C$1.15, he said. Corporate Earnings The yen fell versus 15 of its 16 major counterparts this week as better-than-estimated results from companies including Sony Corp. and Motorola Inc. helped drive global stock gauges to the highest levels this year. The MSCI World Index advanced as much as 0.5 percent today, taking it to near highest level since Oct. 14. Japan’s currency traded at 79.12 against Australia’s dollar, from 78.90. A benchmark interest rate of 0.1 percent in Japan compares with 3 percent in Australia, making the South Pacific nation’s assets attractive to investors. About three of every four Standard & Poor’s 500 Index companies that released results since June 17 exceeded analysts’ profit estimates, according to data compiled by Bloomberg. Motorola rose yesterday by the most since November as job cuts helped the biggest U.S. mobile-phone maker report a smaller loss than analysts predicted. Sony, the maker of Vaio computers and PlayStation 3 game consoles, jumped 6.8 percent after cost cuts helped it post a smaller-than-expected loss. U.S. GDP U.S. gross domestic product contracted at a 1.5 percent annual rate in the second quarter, following a 5.5 percent drop in the first three months of 2009, according to a Bloomberg survey of economists. The Commerce Department report is due at 8:30 a.m. in Washington. The dollar traded at a more than one-week low against the pound after GfK NOP said today that an index of consumer sentiment in the U.K. was unchanged in July at minus 25. The reading is up from minus 39 a year earlier. The report adds to signs that the U.K.’s worst slump in a generation is easing after Nationwide Building Society said house prices rose for a third month, while mortgage approvals increased. Bank of England policy maker Andrew Sentance said last week the bank may pause its plan to stoke growth by buying bonds if forecasts next month point to an improvement. The pound rose to $1.6541, from $1.6493. It strengthened to 85.20 pence per euro, from 85.31 pence. Euro Gains Gains in the euro were tempered before reports that economists said will show deflation deepened in the 16-nation area and job losses there increased. Today’s release of unemployment data may be “potentially serving to keep the euro-dollar subdued,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a research note today. Unemployment in the euro region probably rose to 9.7 percent in June, from 9.5 percent in May, according to a Bloomberg survey of economists before the European Union statistics office releases the data. Prices in the euro area probably dropped 0.4 percent in July from a year earlier, following a decline of 0.1 percent in June, according to a separate Bloomberg survey of economists. The Federal Reserve’s custodial holdings of Treasuries for overseas accounts including foreign central banks reached $2 trillion for the first time. The holdings rose by $5.38 billion, or 0.27 percent, to $2.001 trillion in the week ended July 29, according to data released by the Federal Reserve Bank of New York. Custodial holdings have climbed 18 percent this year, after surging 39 percent in 2008, the data shows. “The report came as a relief for the dollar for now, but a record debt sale may increase the risk of auction failure in coming months,” said Masahiro Ito, senior manager of foreign exchange sales and marketing at Central Tanshi FX Co., a unit of Japan’s largest money broker Central Tanshi Co. “If this happens, the market may start to question the sustainability of debt financing in the U.S., thereby keeping a lid on the dollar,” he said. To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

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