Dec. 20 (Bloomberg) -- The euro rallied to a one-week high against the dollar after borrowing costs fell at a Spanish bill sale and German business confidence unexpectedly increased, easing concern the region’s debt crisis is worsening.
The European Central Bank offered unlimited three-year loans to the region’s banks, boosting demand for higher-yielding assets. The U.S. currency fell against all of its 16 most-traded counterparts on reduced demand for a refuge as builders broke ground in November on the most houses in more than a year, adding to evidence of economic recovery. Sweden’s krona and the Australian dollar rallied after central banks signaled they may hold off on cuts in interest rates at the start of 2012.
“The refi operation is working and that’s relieving pressure on a lot of the markets with a risk-on profile,” said Yra Harris, chief trader and analyst at Praxis Trading in Chicago, said in a telephone interview. “This funding operation from the ECB is effectual.”
The 17-nation euro appreciated 0.7 percent to $1.3082 at 5:02 p.m. New York time, after touching the strongest level since Dec. 13. Europe’s shared currency strengthened 0.4 percent to 101.89 yen. The dollar fell 0.2 percent to 77.89 yen.
The euro has depreciated 1.1 percent this year against nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has advanced 3.9 percent and the dollar has gained 1 percent.
2011 Winners, Losers
South Africa’s rand has declined 19 percent against the dollar in 2011, the most of the U.S. currency’s most-traded peers, followed by Mexico’s peso with a 10.5 percent loss. The yen has advanced 4.1 percent for the largest gain against the greenback, while the Swiss franc is up 0.4 percent.
The Standard & Poor’s 500 Index advanced 3 percent today. Treasury 10-year notes fell, pushing the yield 11 basis points, or 0.11 percentage point, higher to 1.92 percent.
The Canadian dollar increased the most in December against its U.S. counterpart as a rally in crude oil and stocks eased risk aversion. The loonie, as the currency is nicknamed, rose 0.9 percent to C$1.0298 per greenback.
Australia’s dollar rose 1.9 percent to $1.0080 after minutes of the last central bank meeting showed policy makers saw a continued expansion in the domestic economy even as Europe’s debt crisis weighed on the global economy. “Solid growth” among trading partners has tempered the need for lower rates, the minutes said.
The krona rallied 0.9 percent to 6.8652 per U.S. dollar as the Riksbank said it may hold borrowing costs steady next year after lowering the seven-day repo rate by a quarter-percentage point to 1.75 percent.
South Africa’s currency strengthened as much as 2.6 percent against the dollar, a fourth day of gains.
Moody’s Investors Service said the U.K.’s top credit rating depends on the government’s sticking to its fiscal plan and that the economy is not immune to the turmoil in the euro area. The pound added 1 percent to $1.5659.
U.S. housing starts increased 9.3 percent to a 685,000 annual rate in November, exceeding the highest estimate of economists surveyed by Bloomberg News and the highest level since April 2010, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, also climbed to a more than one-year high.
Consumer spending rose 0.3 percent in November, a survey of economists showed before a government report due to be released Dec. 23.
IntercontinentalExchange Inc.’s Dollar Index, a gauge of the greenback against the currencies of six major U.S. trading partners, decreased 0.6 percent to 79.847.
The euro strengthened after the Ifo institute’s business climate index for Germany, based on a survey of 7,000 executives, rose to 107.2 this month from 106.6 in November, boosting optimism that Europe’s largest economy will avoid a recession next year. Economists expected a drop to 106, the median of 36 forecasts in a Bloomberg News survey showed.
“The European data was more important and more relevant to the euro’s performance and to the general risk appetite today than the U.S. data,” said Thomas Molloy, chief dealer in Saddle River, New Jersey, at FX Solutions, a currency brokerage. “The German Ifo number this morning was better than anticipated. That helped. Even more so was the Spanish T-bill auction.”
Europe’s currency was supported after Spain sold 5.64 billion euros of three-month and six-month bills, exceeding a maximum target of 4.5 billion euros. The average yield on the three-month debt dropped to 1.735 percent, compared with 5.110 percent when the securities were last issued on Nov. 22.
“Expectations and hopes are building that the ECB may be successful in its backdoor quantitative easing to slow the pace of bank deleveraging and stem the illiquidity plaguing European sovereign-debt markets,” said Andrew Cox, a currency strategist at Citigroup Inc. in New York, referring to central bank purchases of government bonds. “The focus of the market’s attention this morning was clearly the strong Spanish auction results.”
Greek Finance Minister Evangelos Venizelos said he believed the government was close to an agreement with creditors on a voluntary debt swap.
“We are close to an agreement on PSI,” Venizelos said in a speech in Athens today. “I believe this. And it is feasible if our partners respect the accord of Oct. 26 and Oct. 27.”
The yen weakened against most its major peers as government documents showed the Finance Ministry plans to raise the issuance limit for bills to fund currency intervention to 195 trillion yen ($2.5 trillion), the first increase since Sept. 30. The currency increased to a post-World War II record of 75.35 yen per dollar on Oct. 31.
--With assistance from Maria Petrakis in Athens. Editors: Paul Cox, Kenneth Pringle
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