Bloomberg News

Dollar Gains as Stocks Pare Rise, Fitch Downgrades New Zealand

September 29, 2011

Sept. 29 (Bloomberg) -- The dollar rose against most of its major counterparts as stocks pared gains and New Zealand’s credit rating was lowered by Fitch Ratings, damping demand for higher-yielding assets.

The euro trimmed its advance against the dollar after an approval in Germany of an expansion to the region’s bailout fund failed to allay investor concern about the sovereign debt crisis. New Zealand’s dollar weakened after Fitch cut the nation’s rating by one step to AA, citing its high level of debt and persistent current account deficit. The Brazilian real, Mexico’s peso and the Australian dollar also reversed earlier gains.

“Yes, there was an optimism at the beginning of the week and yes, we had this ratification by the German Bundestag, but the underlying flows remain largely risk-averse,” said Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon, the world’s largest custodial bank, with more than $26 trillion in assets under administration. “In this environment, no one wants to leave risk on for too long.”

The dollar added 0.3 percent to 76.84 yen at 5 p.m. in New York, and touched 77.03, the first time the currency rose above 77 yen since Sept. 15. The euro rose 0.4 percent to $1.3597, after earlier rising as high as $1.3679. The common currency rose 0.7 percent to 104.48 yen.

Stocks, Commodities

The Standard & Poor’s 500 Index rose 0.8 percent after gaining as much as 2.2 percent. The Thomson Reuters/Jefferies CRB index of raw materials added 0.8 percent.

Mexico’s peso was the worst performer among the major currencies, falling 1.1 percent to 13.7100 per dollar after earlier appreciating to 13.3969.

Lawmakers in the Bundestag, the lower house of the German parliament, voted 523 in favor of legislation aimed at expanding the powers of the 440 billion-euro ($600 billion) EFSF, while 85 voted no and three abstained. The legislation is set to be debated and put to a non-binding vote in the upper house, or Bundesrat, tomorrow. All 17 euro members must approve the changes to the EFSF before they go into effect.

German Vote

The vote in Berlin on changes to the EFSF allows the fund to buy the bonds of distressed member states and offer emergency loans to governments, raising Germany’s guarantees to 211 billion euros from 123 billion euros.

“We’re taking piecemeal incremental steps in trying to move forward,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Markets are cautiously optimistic, but the euro problems are far from resolved. People are inching their way back into risk.”

About 93 percent of investors expect Greece to eventually default, according to the quarterly Global Poll of 1,031 Bloomberg subscribers. Forty percent foresee the currency bloc losing at least one member in the next year.

New Zealand had its long-term foreign-currency issuer default rating cut to AA from AA+ by Fitch, which cited a high level of debt and unfavorable economic growth. The long-term local-currency rating was cut to AA+ from AAA. The outlook on both ratings is stable.

The kiwi, as the currency is nicknamed, fell 0.7 percent to 77.10 per U.S. dollar.

Monthly Gains

The yen and dollar have gained the most against eight developed-nation counterparts this month, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has added 6.7 percent and the dollar rose 6.9 percent.

The Japanese currency has outperformed its major peers this quarter, gaining 11.7 percent in the past three months while Australia’s dollar fell 4.3 percent.

Gains in the euro also were tempered after Italy’s borrowing costs rose at a government debt sale today. Italy’s five-year credit-default swaps were at 472 basis points today, showing traders see a 34 percent chance for the nation’s nonpayment, compared with 4.6 percent for the U.S.

The U.S. economy expanded at a 1.3 percent annual rate in the second quarter, faster than the 1 percent estimated last month, revised figures from the Commerce Department showed today. The median forecast of economists surveyed by Bloomberg News was 1.2 percent, following a 0.4 percent increase in the first three months of the year.

Jobs Data

Claims for U.S. unemployment benefits dropped by 37,000 in the week ended Sept. 24 to 391,000, the fewest since April, Labor Department figures showed today. The Applications fell more than forecast last week as an atypical calendar alignment made it more difficult for the government to adjust the data for seasonal changes. Economists forecast 420,000 claims, according to a median estimate in a Bloomberg News survey.

The won snapped a two-day gain versus the dollar after a report showed the current-account surplus narrowed in August, dimming the growth outlook for Korea’s export-led economy.

The surplus was $401.3 million compared with a revised $3.77 billion in July, the Bank of Korea said today.

“The narrowing of the current-account surplus was expected in the market and points to a bleak outlook for the Korean economy,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.

The won fell 0.3 percent to 1,173.70 per dollar.

--Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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