Nov. 25 (Bloomberg) -- The yen traded near a two-month high against the euro as speculation that China will take fresh measures to combat inflation boosted demand for safer assets. Japan's currency gained against seven of its 16 major peers after People's Bank of China adviser Xia Bin said the country may need to use reserve ratios and interest rates to control excess liquidity. The euro was close to a two-month low versus the dollar as European leaders struggled to contain surging bond yields in countries such as Portugal. Australia's dollar fell as Westpac Banking Corp. halved its third-quarter growth forecast for the nation after reports on construction and investment. "China looks like it will do more to control rising prices," said Takashi Kudo, general manager of market information services at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. in Tokyo. "This would probably be negative for risk appetite and would likely cause buying of the yen and the dollar." The yen traded at 111.32 per euro as of 7:55 a.m. in London from 111.40 in New York yesterday, when it rose to 110.32, the strongest since Sept. 15. Japan's currency was at 83.48 per dollar from 83.54. The euro bought $1.3334 from $1.3335 yesterday, when it fell to $1.3285, the weakest since Sept. 22. China will use quantitative and price tools to manage liquidity, PBOC deputy governor Hu Xiaolian said in a statement posted on the central bank's website yesterday. The government has raised rates, increased the reserve requirement for banks and pledged to use price controls as part of efforts to rein in inflation that quickened to 4.4 percent last month. The Chinese yuan gained for the first time in five days, appreciating 0.06 percent to 6.6497, according to the China Foreign Exchange Trade. China Inflation Inflation may stay higher than 4 percent next year and require the government to adjust policies, the Securities Times reported today, citing Wang Tongsan, a researcher at the Chinese Academy of Social Sciences. Deutsche Bank AG recommended investors sell Australia's dollar against the Canadian currency as China acts to cool inflation. The bank is targeting a decline in the so-called Aussie to 96 Canadian cents in the coming weeks. The Australian currency fell 0.4 percent to 98.80 Canadian cents. "A lot of good news is priced into the Australian dollar at these levels," said John Horner, a currency strategist in Sydney at Deutsche Bank. "We've also got tightening pressures in China, which will affect the Australian dollar in particular given it is used as a China play." The Aussie was little changed at 98.16 U.S. cents, and slipped 0.1 percent to 81.93 yen from 82 yen yesterday. Strikes, Austerity Australia's currency also fell after the bureau of statistics said today that spending on plant and equipment declined a seasonally adjusted 1.1 percent in the third quarter. A government report yesterday showed construction work completed shrank 2.1 percent. Westpac, Australia's second-largest lender, cut its forecast for third-quarter gross domestic product, due Dec. 1, to 0.3 percent from 0.6 percent earlier. The euro slipped the most against the South Korean won amid labor strikes before a Portuguese vote tomorrow on austerity measures. Workers in Portugal staged a general strike yesterday and the government faces a final vote in parliament on its 2011 spending plan, which includes measures to trim the deficit. The government said in September it would cut wages, freeze hiring and raise value-added taxes. Austerity measures proposed in Ireland, Spain and Greece have also sparked protests. In Ireland, labor unions are planning a "mass mobilization" to demonstrate against planned spending cuts, with a march in Dublin set for Nov. 27. 'Good Sell' "The euro is a good sell at the moment," said Anthony Gray, head of foreign-exchange dealing in Sydney at Travelex Global Business Payments, a currency-exchange network. "We've seen unrest in Ireland before, so that's definitely possible and will weigh on Europe and will weigh on risk as a whole." European Central Bank council member Axel Weber wrote in Le Figaro that planned budgetary reforms in the region don't go far enough. Punishments for breaching deficit criteria need to be more automatic, and a country's debt level must be considered along with its deficit, Weber wrote. While the foundations of monetary union have been strongly shaken, there's no reason to doubt the euro's future, he added. --With assistance from Sachiko Sakamaki in Tokyo and Lilian Karunungan in Singapore. Editors: Rocky Swift, Nicholas Reynolds

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