By Ben Levisohn May 7 (Bloomberg) -- The dollar strengthened versus the yen as a report showing U.S. employers added more jobs than forecast last month increased optimism that the economy is improving. “The U.S. labor market has stabilized,” Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey, said before the release. “That’s typically bullish for dollar-yen.” The dollar rose 2.6 percent to 92.92 yen at 8:31 a.m. in New York, from 90.58 yen yesterday. The euro rose 0.9 percent to $1.2734 from $1.2620. The euro rose to 118.40 yen, from 114.32. Employers added 290,000 jobs last month after a revised gain of 230,000 in March, Labor Department data showed today. The median estimate of 84 economists in a Bloomberg survey was for an increase of 190,000 jobs. The unemployment rate rose to 9.9 percent from 9.7 percent. Futures on the CME Group Inc. before the payrolls report showed a 54 percent chance the Fed will raise its target rate by at least a quarter-percentage point by December, down from 75 percent odds a month ago. The rate has been a range of zero to 0.25 percent since December 2008, and policy makers reiterated on March 16 it would remain low for an “extended” period. Greek Debt Discussion The euro rose against the dollar and the yen, paring the biggest weekly declines since October 2008, as the Group of Seven nations prepared to discuss the Greek debt crisis and the German government voted on the bailout package. The euro snapped four days of losses versus the dollar after the Japanese Finance Minister Naoto Kan said European members will probably update the Group of Seven on Greece during a conference call today. The pound tumbled to a 13-month low versus the dollar as the U.K. parliamentary election failed to produce an outright winner, fanning concern the next government will struggle to reduce the budget deficit. “Some market participants hope that policy makers will soon get their act together and deal with the worsening situation,” said John Hydeskov, a currency analyst at Danske Bank A/S in Copenhagen. “But the markets are still very vulnerable to any bad news about the euro.” The euro climbed 1.2 percent to $1.2771 as of 7:12 a.m. in New York, paring its decline this week to 3.9 percent, the biggest weekly drop since October 2008, the month following the collapse of Lehman Brothers Holdings Inc. Euro members are unlikely to be asked to take specific policy action such as currency intervention to shore up markets, Kan said at a press conference in Tokyo. The Bank of Japan said today it will pump 2 trillion yen ($22 billion) into the financial system in an effort to maintain orderly markets. Swap-Line Speculation The euro also rallied amid speculation the European Central Bank and the Federal Reserve will re-establish foreign-exchange swap lines to reduce dollar shortages in trades between banks, according to Danske Bank. “A swap-line re-establishment will push the euro higher, as it will be seen as an attempt to stem the demand for dollars relative to euros,” Hydeskov wrote with fellow analyst Sverre Holbek. “The introduction of the swap lines in April 2009, sparked a solid rise in the euro and even though the effect will probably be smaller this time, we still believe the directional move will be the same.” The euro tumbled 4.9 percent against the yen and 1.5 percent against the dollar yesterday after ECB President Jean- Claude Trichet resisted taking extra steps to stem unease in the region, saying the bank didn’t discuss buying government bonds at its monthly policy meeting. European leaders agreed a 110 billion-euro bailout for Greece on May 2. Bond Redemptions “This little rebound in the euro is not sustainable,” said Ian Stannard, a senior foreign-exchange strategist at BNP Paribas SA in London. “The overall picture is bearish with regards to risk assets and very, very bearish on the euro.” Greek Finance Minister George Papaconstantinou said yesterday that his nation doesn’t have the money to pay 8.5 billion euros of bond redemptions due this month. The nation’s parliament approved austerity measures required for the aid from the European Union and the International Monetary Fund. Germany’s lower house of parliament approved its 22.4 billion-euro share of the Greek rescue package today, voting 390 in favor and 72 against, with 139 legislators abstaining. The bill now goes to the upper house, or Bundesrat, before being signed into law by the German president as early as today. ‘Discounting Restructuring’ German Chancellor Angela Merkel and other euro-region governments are set to arrive in Brussels about 6:15 p.m. local time for a summit called five days ago to draw “conclusions” from the Greek crisis. A press conference is slated for 10 p.m. “The major concern is that markets are now discounting a high probability of a restructuring led by the EU and the IMF of Greek government debt,” Bob Parker, a senior adviser in London at Credit Suisse Group AG, said in an interview with Bloomberg television. “It’s getting worse and there has been nothing to calm market fears.” The yield premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds surged to 973 basis points, the highest since Bloomberg started to collect the data in 1998. Europe’s fiscal crisis may threaten banks in Portugal, Spain, Italy, Ireland and the U.K. as the risk of contagion grows, Moody’s Investors Service said in a report yesterday. Hung Parliament The pound fell as the U.K. election failed to produce a majority for the first time since 1974, with David Cameron’s Conservatives unable to win enough seats to gain outright control. Liberal Democrat leader Nick Clegg said the Conservatives should have first attempt to form a government. “A hung parliament will unsettle the political situation in the U.K., thereby making it harder for the new cabinet to smoothly implement reductions in the fiscal deficit,” said Takeshi Makita, senior economist in Tokyo at Japan Research Institute Ltd., a unit of Sumitomo Mitsui Financial Group Inc., Japan’s third-largest banking group. “I maintain a negative outlook on the pound.” The U.K. election result is “no direct threat” to the country’s Aaa rating, Moody’s Investors Service said today. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net

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