By Lukanyo Mnyanda and Yoshiaki Nohara May 10 (Bloomberg) -- The euro surged against the dollar and the yen after European policy makers put together a loan package of almost $1 trillion to support debt-laden governments and shore up the 16-nation currency. The euro headed for its biggest two-day gain since November 2008 against its Japanese counterpart as regional governments announced an unprecedented lending plan and a program of bond purchases to combat a sovereign-debt crisis that sent the common currency to a 14-month low last week and drove up yields on Greek, Portuguese and Spanish bonds. The yen fell the most against the Norwegian krone and Swedish krona as central banks agreed to participate in U.S. dollar-swap agreements to contain the debt crisis, reviving demand for higher-yielding assets. “Clearly it’s a substantial package.” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The steps are a positive development for risk appetite and we are seeing the euro rally.” The euro gained 2.2 percent to $1.3033 as of 10:09 a.m. in London, after tumbling 4.1 percent last week, its biggest slide since October 2008, and putting it on course for it biggest two- day gain versus the dollar since March 2009. The currency surged by 3.9 percent to 121.59 yen, bringing its gain the past two days to 6.3 percent. The dollar was at 92.28 yen from 91.59 yen. ‘Considerable Sums’ Under pressure from the U.S. and Asia to stabilize markets, the European governments gambled that the show of financial force would prevent a sovereign-debt crisis and combat speculation the 11-year-old euro might break apart. “We are placing considerable sums in the interests of stability in Europe,” Spanish Economy Minister Elena Salgado told reporters in Brussels after chairing a 14-hour meeting. Governments pledged to make 440 billion euros ($570 billion) available as part of the package, with 60 billion euros more from the European Union’s budget and as much as 250 billion euros from the International Monetary Fund, Salgado said. The European Central Bank said in a statement it will intervene in government and private bond markets “to ensure depth and liquidity in those market segments which are dysfunctional.” Germany’s Bundesbank said it began buying government bonds today. Investors should use a rally in the euro to make fresh bets on the currency’s decline toward $1.20 within three months, according to Barclays Capital, the world’s third-biggest foreign-exchange trader. UBS AG and bank of Tokyo also said it will stay weaker because of the ECB’s looser policy. ‘Negative for Euro’ “To access the new facilities, countries would need to agree to fiscal consolidation measures,” David Forrester, Singapore-based currency economist at Barclays Capital, wrote in a note today. “This tight fiscal/easy monetary policy mix is likely to be negative for euro.” The euro has lost 6.3 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar is up 3.9 percent. Analysts reduced the June forecasts for the euro every month this year on speculation the region’s expansion will slow as nations from Greece to Portugal are forced to curb spending. The ECB will raise its main refinancing rate from a record low 1 percent in the first quarter of 2011, according to a Bloomberg News survey. The yen weakened as the Bank of Japan said central banks from the U.S., Europe, U.K., Switzerland and Canada will participate in U.S. dollar-swap agreements aimed at easing “strains” in dollar funding in Europe. The action is a re- establishment of currency swaps that were implemented during the financial crisis, the BOJ said in a statement today. Yen Declines The yen dropped 3.9 percent, the most on a closing basis since April 29, 2009, to 84.47 per Australian dollar. Japan’s currency surged 6.3 percent last week. It fell 5 percent to 15.4520 against Norway’s currency and was 5.1 percent weaker at 12.584 against the Swedish krona. Official action that supported the euro is “even more positive for the general risk proxies in foreign-exchange markets,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London. “It’s playing out primarily through an unwinding of the risk aversion move we’ve seen. It’s positive for the euro, but even more positive for currencies like the Aussie.” The Australian dollar rose 1.9 percent to 90.49 U.S. cents, and New Zealand’s currency gained 1.9 percent to 72.76 cents. To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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