Dollar Posts Biggest Weekly Gain

The dollar posted its biggest weekly advance ever against the euro on a surge in demand for U.S. currency funding amid a worldwide credit crunch.

The U.S. currency erased its gain versus the yen on speculation the $700 billion financial bailout approved by Congress today won't be an economic cure-all. The yen dropped against major currencies including the euro and the New Zealand dollar as approval of the rescue encouraged investors to borrow in Japan to buy higher-yielding assets.

The greenback rose 5.6 percent this week versus the euro, the biggest increase since the 15-nation currency debuted in 1999. It rose 0.2 percent to $1.3796 at 4:17 p.m. in New York, from $1.3819 yesterday. The dollar fell 0.1 percent to 105.19 yen, from 105.33, declining 0.8 percent this week. The euro dropped 0.3 percent to 145.16 yen, from 145.55. It fell 6.3 percent this week, the biggest drop ever.

Japan's yen fell 0.8 percent to 69.72 against the New Zealand dollar on speculation the bailout will prompt investors to get funds in a country will low borrowing costs and buy assets where returns are higher. Japan's 0.5 percent target lending rate compares with 7.5 percent in New Zealand.

The euro was headed for a record weekly drop against the dollar after European Central Bank President Jean-Claude Trichet said yesterday policy makers discussed cutting the main refinancing rate. European economies face ``increasing downside risks,'' he said at a press conference following the decision to keep the benchmark at a seven-year high of 4.25 percent.

The pound posted its biggest weekly drop versus the dollar since 1992 after a report showed U.K. services contracted the most in at least 12 years, fueling speculation the economy may already be in a recession and the Bank of England will cut interest rates soon. The U.K. currency pared its weekly loss against the dollar, rising to $1.7755 by 4:46 p.m., showing a drop of 3.8 percent in the week, the biggest since October 1992. The pound traded at 187.89 yen, from 185.80 yesterday, and 195.54 at the end of last week. Against the euro, it rose to 77.91 pence, from 78.34 yesterday, gaining 1.7 percent since Sept. 26.

The Australian dollar fell by the most this week since 1985 against the U.S. currency as investors cut holdings of higher-yielding assets on speculation the global economy won't avoid a recession. The currency fell to 77.89 U.S. cents as of 4:38 p.m. in Sydney, taking the loss to 6.3 percent from late in New York on Sept. 26.

New Zealand dollar dropped versus the yen this week as did its Australian counterpart as investors reduced so-called carry trades, where they borrow money in countries with low interest rates and put the money elsewhere to reap bigger returns. The currency weakened 3.3 percent this week to 66.33 U.S. cents from 68.60 a week ago.

Brazil's real dropped the most this week in six years as a deepening global credit crisis curbed investment in Latin America's biggest economy. The real sank 9.8 percent this week to 2.0440 per dollar at 5:29 p.m. New York time, from 1.8445 on Sept. 26. It's the steepest weekly decline since September 2002. The real fell 1.1 percent today, its third straight daily drop.

India's rupee slumped to the lowest since 2003 as stocks slid, adding to speculation investors will take money out of the nation. The rupee fell 1 percent to 47.085 per dollar, the lowest since June 2003, as of the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. The currency lost 1.15 percent this week.

Russia's ruble had its biggest weekly decline against the dollar in 8 1/2 years as the squeeze in global credit markets and falling crude oil prices slashed demand for emerging-market assets. The ruble fell for a seventh straight day against the dollar, dropping to 25.9295 by 7:44 p.m. in Moscow, from 25.9225 yesterday. It slumped 3.6 percent this week, the most since the second week of January 2000.,
10/3/2008 4:56:31 PM