Yen Heads for Biggest Gains in 10 Years

The yen rose against the euro and headed for its biggest weekly gain in a decade against the dollar as a global stock rout prompted investors to sell higher- yielding assets and pay back low-cost loans in Japan.

Japan's currency was poised to rally the most versus the 15-nation euro in any week since its debut in 1999 as the worst week ever for the Standard & Poor's 500 Index discouraged carry trades.

The yen advanced 1.3 percent to 134.12 per euro at 3:20 p.m. in New York, from 135.83 yesterday, after touching 132.24, the strongest since June 2005. The yen dropped 0.6 percent to 100.38 per dollar from 99.82 after reaching 97.92, the strongest since March 19. The euro fell 1.7 percent to $1.3372 from $1.3604 and was down 2.9 percent for the week.

The U.S. dollar has decreased 4.6 percent against the yen this week, the most since the period ended Oct. 9, 1998, when the greenback plunged 14 percent as investors shed risk in the wake of the collapse of Long-Term Capital Management LP.

Coordinated interest-rate reductions by central banks in the U.S., Europe and Asia in the past two days failed to revive lending among banks. The cost of borrowing in dollars in London for three months rose to 4.82 percent today, the highest since December, the British Bankers' Association said.

The euro was on course for its second straight weekly decline versus the dollar on speculation the credit crisis in Europe will deepen, prompting the European Central Bank to cut interest rates further. The bank lowered its main refinancing rate two days ago for the first time in five years. The pound fell as much as 1.8 percent to $1.6792, breaching $1.70 for the first time since November 2003.

The yen gained 20.2 percent this week to 65.06 versus the Australian dollar, 15 percent to 59.22 against New Zealand's currency, known as the kiwi, and 7.4 percent against the euro on speculation investors will reverse trades in which they 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 6 percent in Australia, 7.5 percent in New Zealand and 3.75 percent in Europe.

Canada's dollar suffered the biggest weekly and daily declines in at least 37 years as the deepening credit crisis drove investors to take refuge in the U.S. dollar. The Canadian dollar dropped as much as 5.4 percent today to C$1.2125 per U.S. dollar, from C$1.1501 yesterday, the weakest since Aug. 22, 2005. The currency fell for a seventh day, its longest losing streak since the period ended Aug. 11. It last traded at C$1.2031 at 2:49 p.m. in Toronto. One Canadian dollar buys 83.12 U.S. cents.

Brazil's central bank sold dollars in the local spot market for a third consecutive day in an effort to reduce losses in the real that amount to 17.7 percent this month. The real fell 1.4 percent to 2.3137 per dollar at 2:57 p.m. New York time. The central bank sold dollars twice today.

India's rupee slid to a six-year low, completing its worst week since 1997, as a global stocks rout prompted investors to seek safer bets than emerging markets. The rupee fell 2.94 percent to 48.47 per dollar this week as of the 5 p.m. close in Mumbai. That is the biggest weekly decline since November 1997.,
10/10/2008 1:09:22 PM