Bloomberg News

Yen Approaches Record as European Stocks Fluctuate

October 26, 2011

(Corrects to show Bank of Japan meeting is one-day long in seventh paragraph of story first published on Oct. 26.)

Oct. 26 (Bloomberg) -- The yen approached a post-World War II high against the dollar while European stocks were little changed before the region’s leaders meet to discuss the debt crisis. Metals rallied after comments from Chinese Premier Wen Jiabao stoked speculation the nation will ease monetary policy.

Japan’s currency climbed 0.2 percent to 75.97 per dollar as of 8:12 a.m. in London, after reaching a record 75.74 yesterday. The Australian dollar sank 0.4 percent. The Stoxx Europe 600 Index increased 0.2 percent after earlier losing 0.1 percent. Standard & Poor’s 500 futures added 0.7 percent following the gauge’s 2 percent drop yesterday. Copper jumped 2.6 percent and gold gained for a fourth day.

European leaders are holding the 14th crisis summit in 21 months to discuss Greece’s second bailout, the recapitalization of banks and strengthening the 440 billion-euro ($612 billion) rescue fund into a more potent weapon. A finance ministers’ meeting originally scheduled to precede the summit was canceled. Wen said China’s economic policy will be fine-tuned as needed and the industry ministry said it is studying “stimulative policies” for smaller companies.

“Europe is still the biggest single cause of uncertainty and fear in the market,” Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a Bloomberg Television interview. “It’s not terribly optimistic that we’re in the hands of bureaucrats and politicians. But if we can get just some sense that the Europeans have an idea of where they’d like to go, which difficult choice they’d like to make, the markets could respond very positively.”

Europe Summit

The euro was little changed at 105.84 yen and fetched $1.3935 from $1.3908 before the summit, which will cap six days of haggling among the region’s central bankers and leaders. German Chancellor Angela Merkel is due to address lower-house lawmakers on the crisis at about noon in Berlin today before the government puts plans to bulk up the 440 billion-euro ($612 billion) rescue fund to a vote.

The yen held gains even after Finance Minister Jun Azumi said today his ministry will take “decisive” measures to stem the currency’s rise and won’t rule out any steps to deal with the situation.

Bank of Japan policy makers will discuss more monetary easing at a one-day meeting beginning tomorrow, the Nikkei reported. Measures to mitigate the impact of the strong yen on the Japanese economy may include expanding a 50 trillion yen ($660 billion) asset purchase program by 5 trillion yen and purchasing bonds with maturities longer than two years, the newspaper reported without citing anyone.

Australia, China

The Australian dollar weakened against all 16 most actively traded counterparts after the Bureau of Statistics said the nation’s consumer price index rose 0.6 percent in the third quarter from the previous three months, when it gained 0.9 percent.

MSCI’s Asia Pacific Index fell 0.2 percent, halting a three-day rally. Japan’s Nikkei 225 Stock Average slid 0.2 percent, while Australia’s S&P/ASX 200 Index increased 0.4 percent. Financial markets in India, Singapore and Malaysia are closed for holidays.

The Hang Seng China Enterprises Index of Chinese stocks traded in Hong Kong rallied 1 percent and the Shanghai Composite Index gained 0.7 percent after Wen said officials will make adjustments at a “suitable time and by an appropriate degree.” Guotai Junan Securities Co. said the central bank may cut borrowing costs.

‘More Dovish’

“If China’s premier now sounds more dovish and is likely to do some sort of easing, that will add to confidence China will avoid hard landing,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “That’s exactly what investors wanted to hear.”

Three-month copper increased 2.6 percent to $7,728 a metric ton in London, erasing yesterday’s 1.4 percent drop. Zinc rose 2.2 percent, nickel added 0.8 percent and lead climbed 1.4 percent.

The S&P 500 fell yesterday for the first time in four days after United Parcel Service Inc. said declining shipments from Asia to the U.S. curbed growth in its international business and 3M Co. cut its profit forecast. Amazon.com tumbled in extended trading after posting lower-than-estimated earnings.

Data yesterday showed consumer confidence unexpectedly slumped in October to the lowest level since March 2009 and home prices in 20 U.S. cities dropped more than forecast in August.

U.S. Economy

Economic reports today may show orders for durable goods excluding transportation equipment rose and new home sales increased, before Commerce Department data tomorrow that’s forecast to show gross domestic product rose at a faster pace in the third quarter. Treasury 10-year yields climbed three basis points to 2.14 percent.

The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment climbed, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbing eight basis points to 205, Credit Agricole SA prices show. That’s set to be the highest level since Oct. 20, according to data provider CMA.

--With assistance from Susan Li and Paul Gordon in Hong Kong, Yusuke Miyazawa, Yoshiaki Nohara and Monami Yui in Tokyo and Kristine Aquino and James Poole in Singapore. Editors: Nick Gentle, Matthew Oakley

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.


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