The dollar rallied from near record lows against the Swiss franc and yen after U.S. President Barack Obama said that congressional leaders had agreed on measures to raise nation’s debt limit and avoid a default. The yen weakened against all of its major counterparts as gains in stocks reduced demand for lower-yielding, haven currencies. The New Zealand dollar reached a record high on improved prospects for the nation’s exports after data showed faster-than-estimated manufacturing in China. The euro fell against 13 of its 16 major peers before Spain sells bonds this week amid concern Europe’s sovereign debt crisis will linger. “It’s been the focus of the market on whether lawmakers could reach an agreement, so the clearer direction is a positive,” said Masahide Tanaka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s third-largest bank by market value. “The dollar is being bought, and the yen is being sold, with improved sentiment.” The dollar jumped to 77.57 yen as of 11:44 a.m. in Tokyo from 76.76 yen on July 29 in New York, a record low for a closing level. It climbed to 79.29 Swiss centimes from 78.55 last week, when it touched the weakest-ever level of 78.51. The greenback traded at $1.4384 per euro from $1.4398. The euro jumped 0.8 percent to 1.14053 Swiss francs after touching a historic low of 1.12724 francs. The 17-nation currency advanced 1 percent to 111.66 yen. The New Zealand dollar, known as the kiwi, reached 88.44 U.S. cents, the most since it was freely floated in 1985, before buying 88.17 U.S. cents, from 87.93 cents last week. Debt Agreement Obama said that leaders of both parties in the U.S. House and Senate had approved an agreement to raise the nation’s $14.3 trillion debt ceiling and cut the federal deficit. Senate Majority Leader Harry Reid endorsed the accord among Republican leaders and the Obama administration even as negotiators were working out the final details. The U.S. will not default on its obligations, Senate Minority Leader Mitch McConnell said. Treasury Secretary Timothy F. Geithner has said the U.S. will run out of options to prevent a default by tomorrow if the debt limit isn’t increased. Standard & Poor’s, which has rated the U.S. AAA since 1941, said on July 14 that the chance of a downgrade is 50 percent in the next three months and it may cut the rating as soon as this month if there isn’t a “credible” plan to reduce the nation’s deficit. The yen snapped a two-day advance against the dollar as the MSCI Asia Pacific Index of regional shares climbed 1.5 percent. China’s Manufacturing The Purchasing Managers’ Index for China’s manufacturing was at 50.7 in July, compared with 50.9 in June, the China Federation of Logistics and Purchasing said in a statement today. That was more than every forecast in a Bloomberg News survey of 13 economists. The yen also slid amid speculation Japanese policy makers will take steps to to halt gains in the currency that threaten the nation’s export-led economic recovery. Finance Minister Yoshihiko Noda today said he’s watching currency markets closely and that recent movements haven’t reflected Japan’s economic fundamentals. The dollar has lost 7.9 percent this year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Traders boosted bearish bets against the dollar last week amid the debt ceiling debate and concern the U.S. economy is decelerating. ‘Short-Lived’ Rally The difference in the number of wagers by hedge funds and other speculators on an advance in the euro compared with those on a drop increased 84 percent to 17,038 on July 26 from a week earlier, the steepest gain since June 7. so-called net longs on the yen were 51,302, the most since September, data from the Commodity Futures Trading Commission in Washington show. Any relief rally of the dollar “will probably be short- lived because it’s quite clear that the U.S. economy has lost momentum and further government fiscal restraint will drag on the economy,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. The Institute for Supply Management’s index for U.S. manufacturing fell to 54.5 last month from 55.3 in June, according to the median estimate of economists surveyed by Bloomberg News before the report today. Figures greater than 50 signal expansion. U.S. Economy U.S. gross domestic product expanded at a 1.3 percent annual rate in the second quarter after a 0.4 percent pace in the prior period, the worst six months since the recovery began in June 2009, Commerce Department figures showed July 29. The euro has dropped against all but one of its 16 major peers in the past three months on concern the debt crisis triggered by Greece is spreading to bigger nations. Spain will sell 3.4 percent notes due in 2014 and 4.4 percent bonds due in 2015 on Aug. 4. Moody’s Investors Service said on July 29 that it’s reviewing Spain’s Aa2 credit rating and that a cut would probably be “limited to one notch.” “We remain skeptical over how well Europe will cope with its debt crisis,” ANZ National Bank Ltd. analysts led by Chief Economist Cameron Bagrie wrote in a report today. “While attention at present is U.S. centric, it’s Europe that our sovereign risk analysis keeps us alert to.” To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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