By Ye Xie and Anchalee Worrachate Aug. 5 (Bloomberg) -- The yen and dollar rose as investor demand for higher-yielding currencies fell as reports showed U.S. service industries contracted last month at a faster pace and companies eliminated more jobs than economists forecast. The greenback and yen advanced against the Australian dollar and South African rand on renewed demand for safety. The pound increased to its highest level against the dollar in more than nine months as reports showed U.K. services industries grew last month by the most in 1 1/2 years. “The recent spike in risky assets is overdone,” said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon Corp., the world’s largest custodial bank. “It appears investors are positioning for a pullback in risk appetite. We haven’t seen concrete signs of a sustainable recovery.” The yen traded at 136.54 against the euro at 10:10 a.m. in New York, compared with 137.21 yesterday. Japan’s currency was at 94.99 per dollar, compared with 95.23. The dollar traded at $1.4378 per euro, compared with $1.4408. The dollar gained 0.4 percent to 84.07 U.S. cents versus the Australian currency while the yen increased 1.7 percent to 11.93 against the rand on speculation demand for higher-yielding assets will decrease. The target lending rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 3 percent in Australia and 7.5 percent in South Africa. The Standard & Poor’s 500 Index dropped 0.8 percent after a four-day rally that pushed the gauge of stocks above 1,000 on Aug. 3 for the first time since November. Equity ‘Direction’ “Players are looking at equity markets for direction, so when stocks fall, the yen rises,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s a strong inverse relationship between the two. Some of this yen buying could also be from exporters.” The Dollar Index, which the ICE uses to track the currencies of six major U.S. trading partners, was little changed at 77.773 after reaching the lowest level since September on Aug. 3. The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 from 47 in June, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction. U.S. companies cut an estimated 371,000 workers from payrolls last month after a revised reduction of 463,000 in June, ADP Employer Services reported. The median forecast of 30 economist in a Bloomberg News survey was for a drop of 350,000. Jobs Data The Labor Department’s data on U.S. initial jobless claims for last week are due tomorrow and its July payroll report will come the following day. “If this week’s events don’t dent expectations for a global economic recovery and risk appetite is sustained, then the U.S. dollar will likely remain under pressure,” John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a note today. The Israeli shekel dropped for a third day, decreasing 0.2 percent to 3.8837 against the dollar as the Bank of Israel stepped up its purchases in the foreign-exchange market. It said on Aug. 3 it may increase its purchases in the event of “unusual movements.” The central bank bought $100 million a day since July last year to weaken the shekel and help support exports, hurt by the drop in demand brought on by the global financial crisis. Stronger Pound The pound climbed as much as 0.6 percent to $1.7043, the highest level since Oct. 21, on speculation the U.K. is emerging from its worst recession in a generation. An index of services rose to 53.2 last month from 51.6 in June, Markit said today in London. Factory output climbed 0.4 percent in June, the U.K.’s statistics office said. Lloyds Banking Group Plc’s Halifax division said home values jumped almost twice as much as economists forecast last month. The Australian dollar may fall against the yen in August, snapping its longest stretch of monthly gains since 2004, as Japanese trusts expect to raise less cash to buy foreign securities, RBC Capital Markets said. Japanese mutual funds that aim to attract cash from investors to buy foreign securities, also known as Toshin, are likely to raise 50 billion yen ($525 million) in August, down from 200 billion yen on average between March and July, Sue Trinh, senior currency strategist at RBC in Sydney, wrote in a note to clients today. Toshin issuance in February was 47 billion yen, she said. “The rally in the Australian dollar versus the yen from its March lows coincided with a resurgence in Toshin issuance,” Trinh wrote. “Based on the pitiful issuance we expect for August, it suggests the Australian dollar could pull back sharply from current levels” toward 73 yen, she wrote. Australia’s dollar weakened 0.2 percent to 80.09 yen. The Aussie strengthened 30 percent against the yen since March 1. To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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