Yen Rallies as U.S. Debates Rescue

The yen rose, headed for a second weekly gain against the dollar, as U.S. lawmakers disagreed over a rescue plan for the financial industry and Washington Mutual Inc. became the nation's biggest bank to collapse.

The Japanese currency also strengthened against the euro and the Australian dollar after a group of Republicans opposed to the Treasury's $700 billion asset-purchase plan submitted an alternative proposal, prompting investors to pare so-called carry trades. The dollar rose against the euro as investors sought the relative safety of U.S. Treasuries.

The yen rose to 105.36 per dollar as of 10:29 a.m. in London, from 106.56 yesterday in New York, taking this week's gain to 2 percent. The euro bought 153.56 yen, from 155.68, down 1.2 percent for the week. The dollar rose to $1.4573 per euro, from $1.4609 yesterday and $1.4466 on Sept. 19.

The Australian dollar bought 87.11 yen, down 2.1 percent from a week ago, while the New Zealand dollar fell 1 percent to 71.98 yen. In carry trades, investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7 percent in Australia and 7.5 percent in New Zealand. The risk is that currency moves erase profits.

The dollar rose against the euro as Treasury notes extended their longest winning streak since February. The yield on the two-year note fell 17 basis points to 2 percent, according to BGCantor Market Data.

China's yuan slid by the most since a peg against the dollar was scrapped in July 2005 on speculation policy makers are limiting appreciation to aid exporters and sustain growth amid global financial turmoil. The Chinese currency fell 0.46 percent to 6.8485 per dollar as of 5:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System.

India's rupee declined for a seventh week, the longest stretch in more than 2 1/2 years, on speculation losses in financial markets will widen as a U.S. rescue package is delayed in Congress. The rupee declined 1.5 percent this week to 46.5475 against the dollar at the 5 p.m. close in Mumbai.

Russia's ruble headed for a second weekly gain versus the dollar-euro basket amid speculation fewer funds are leaving the country after the government pledged to bail out the market. The managed currency was at 30.2252 to the basket by 2:50 p.m. in Moscow, from 30.2361 late yesterday.,
9/26/2008 6:24:41 AM