By Ben Levisohn and Catarina Saraiva June 4 (Bloomberg) -- The dollar and the yen rose against their major counterparts as concern that Europe’s debt crisis is expanding and the U.S. economic recovery may be growing more slowly pushed investors to the safest currencies. The euro fell to the lowest level since March 2006 amid speculation the European fiscal crisis may be spreading into the financial system. A Hungarian government spokesman said “it’s no exaggeration to talk about default” by the nation, boosting demand for the Swiss franc as a haven. The yen gained versus all 16 of its most-traded peers after a government report showed the U.S. economy added fewer jobs in May than forecast. “There’s strong risk aversion in the market, and the payrolls number was like a red flag to a bull,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “When you have problems with sovereign bonds, those bonds are held by banks. Those banks will weaken, and that’s driving the euro lower.” The dollar fell 0.7 percent to 92.06 yen at 9:48 a.m. in New York, from 92.71 yen yesterday. The euro tumbled 1.7 percent to 110.86 yen, from 112.76, and dropped 1 percent to $1.2041, from $1.2163. The euro touched $1.2019, the lowest level since March 2006. U.S. payrolls rose by 431,000 last month after a 290,000 increase in April, data from the Labor Department in Washington showed today. The gain was smaller than the 536,000 median forecast in a Bloomberg News survey and reflected a 411,000 jump in government hiring of temporary help for the 2010 census. Private Payrolls Private payrolls rose a less-than-forecast 41,000. The unemployment rate fell to 9.7 percent as Americans dropped out of the labor force. “The private payroll number was much less than expected -- that is a blow to the view that the U.S. job situation is showing material improvement,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “As a result, dollar- yen and a lot of the risk trades, the yen crosses, are all getting knocked lower.” The MSCI World Index of stocks tumbled 1.9 percent, and the Standard & Poor’s 500 Index slid 1.9 percent. Crude oil for July delivery fell 1.7 percent to $73.32 a barrel on the New York Mercantile Exchange. Earlier it rose as high as $75.42. Brazil’s real dropped 1.5 percent to 50.14 yen and South Africa’s rand fell 1 percent to 11.93 yen on speculation the European debt crisis will force traders to unwind carry trades, in which they borrow money in countries with low interest rates to invest in higher-yielding assets. Japan’s 0.1 percent benchmark rate makes the yen a popular choice for funding such transactions. The risk to such trades is that the borrowed currency rises, erasing profits. ‘Grave Situation’ The Swiss franc strengthened beyond 1.40 versus the euro for the first time after Peter Szijjarto, spokesman for Prime Minister Viktor Orban, said Hungary is in a “grave situation” because the previous government “manipulated” figures and “lied” about the state of the economy. A fact-finding panel will probably present preliminary figures on the state of the economy this weekend, Szijjarto said at a news conference in Budapest. “It’s clear that the economy is in a very grave situation,” Szijjarto said. “We need a clean slate to formulate our economic action plan, and the fact-finding committee will provide just that.” ‘Other Fears’ Hungary needed a $24 billion international bailout to avert default in 2008. “Talk of a Hungary default spurs other fears,” said Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG. “The Swiss franc appreciates because it’s a safe haven and because many Hungarian mortgages are in francs. Risk is off, so the dollar and yen rose.” Societe Generale SA declined to comment on reports that cited speculation the bank may face losses on derivatives. “If we had something to say, we would have already communicated,” said Laura Schalk, a Paris-based spokeswoman. “There are tensions in European banks that are dragging down banking stocks, and we have tensions in Eastern Europe that are putting risk markets on their back foot,” said Jens Nordvig, a managing director of currency research in New York at Nomura International Plc. “We’re in the middle of a structural asset allocation shift out of the euro.” The euro has dropped 9.3 percent this year versus its developed-world counterparts according to Bloomberg Correlation- Weighted Indexes. “Behind the day-to-day risk on and risk off, market perceptions of fiscal risk have been the key underlying driver of the majors over the past few months,” Adam Boyton, a senior currency strategist at Deutsche Bank AG in New York, wrote in an e-mailed note received today. Finance chiefs from the Group of 20 nations began talks today in Busan, South Korea, after central banks from Australia to Canada identified investor reaction to Europe’s indebtedness as a hurdle to higher interest rates. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net.

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