The euro fell toward its lowest level since 2001 against the yen on speculation Greece is nearing default and before Italy sells bonds today amid concern the region’s debt crisis is worsening. The 17-nation currency declined for a fourth day against its Japanese counterpart as traders wagered the European Central Bank will cut its benchmark interest rate over the next year, according to a Credit Suisse Group AG index. The yen gained against 14 of its 16 most-traded peers as investors bought the safest assets. Taiwan’s dollar dropped to the lowest level in five months, leading losses among Asian currencies. “The nerves around the whole euro system are just so frayed now that it’s difficult to see conditions improving all that much,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “The euro can easily fall significantly further before the year’s out because there’s still scope for policy easing by the ECB.” The euro declined to 105.39 yen as of 1:27 p.m. in Tokyo from 105.62 in New York yesterday, when it reached 103.90, the lowest since June 2001. The shared currency traded at $1.3685 from $1.3679 yesterday, when it touched $1.3495, the weakest since Feb. 16. The yen rose to 77.02 per dollar from 77.21. Greece’s perceived chance of default in the next five years has soared to 98 percent, based on a standard pricing model of credit-default swaps, as Prime Minister George Papandreou fails to reassure international investors that his country can survive the euro-region crisis. Bond Sales Italy will auction as much as 7 billion euros ($9.6 billion) of bonds today. The treasury is selling the debt to help pay for 14.5 billion euros of bonds maturing on Sept. 15. The euro erased earlier declines against the greenback after an Italian government official yesterday said officials have held talks with their Chinese counterparts about potential investments in the economy. The purchase of Italian bonds by China was not the focus of the talks, which took place in the past few weeks, the official said on condition of anonymity, without specifying which assets may be involved. The reports helped the euro recover, said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “I’ll expect to see a partial retracement at least, simply to correct the vicious degree of selling that we’ve seen.” Technical Levels The euro’s 14-day relative strength index versus the yen was at 25.2 and against the dollar, it was at 30.7, near the 30 level that some traders see as a sign that an asset’s price may reverse direction after falling too rapidly. A Credit Suisse index based on swaps showed traders are betting the ECB will cut its benchmark interest rate by 32 basis points, or 0.32 percentage point, over the next 12 months. That compares with a 25 point increase projected on Aug. 1. Demand for the yen was boosted on speculation risk aversion is prompting investors to buy the currency as a refuge. The yen has appreciated 2.5 percent in the past week, the best performer among the 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes. “The yen is now the safe-haven currency of choice,” said Speizer. “Further bouts of risk aversion are going to continue to benefit the yen.” The yen tends to appreciate during economic and financial turmoil because Japan’s current account surplus makes it less reliant on foreign capital. The Taiwan dollar led declines in Asian currencies against the greenback as concern that the European debt crisis is worsening curbed demand for emerging-market assets. Taiwan’s currency slid to as low as NT$29.452 per dollar, the weakest since April 1, before trading at NT29.449. The Malaysian ringgit dropped as much as 0.6 percent to the weakest since June 28 before buying 3.0465 per dollar. To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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