Euro Rises Most in 3 Weeks

The euro rose the most in three weeks against the dollar and yen after European leaders agreed to guarantee bank borrowing and prevent failures that would further batter the credit markets.

The U.S. currency fell versus the Mexican peso and Australian dollar as the Federal Reserve and three other central banks announced unlimited dollar auctions, reducing demand for the greenback for funding among financial firms. Brazil's real, South Korea's won and the peso led a rally in emerging-market currencies as the Group of Seven nations pledged over the weekend to take ``all necessary steps'' to stem the market turmoil.

The euro rose as much as 2 percent, the most since Sept. 22, to $1.3682, before trading at $1.3609 at 10:44 a.m. in New York, from $1.3408 on Oct. 10. The euro advanced 1.6 percent to 137.12 yen, from 134.96. The dollar was little changed at 100.70 yen.

The Australian dollar rose 4.6 percent to 67.29 U.S. cents after the government guaranteed all bank deposits for three years.

The pound rose for the first time in four days, gaining 2.2 percent to $1.7423, as the U.K. government said it will invest in banks. Royal Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group will get 37 billion pounds ($64.4 billion), the government said in a Regulatory News Service statement. The funding will allow the banks to boost their so-called Tier One capital ratio to more than 9 percent.

European policy makers meeting in Paris yesterday pledged to guarantee until the end of 2009 bank-debt issues with maturities up to five years. Plans to recapitalize banks in the region will cost 300 billion euros ($409.7 billion), according to Goldman Sachs Group Inc.

Losses in the dollar accelerated after the Fed said today the European Central Bank, the Bank of England and the Swiss National Bank will offer financial institutions unlimited funds in the U.S. currency, providing easier access to dollars in response to demand for loans. The central banks will conduct dollar auctions at maturities of seven, 28 and 84 days at a fixed interest rate, the Fed said on its Web site.

Brazil's real had its biggest gain in six years as an unprecedented push by central banks to flood the global financial system with dollars buoyed demand for higher-yielding assets. Brazil's real gained 6.2 percent to 2.1785 per dollar after sinking 11.6 percent last week.

India's rupee rose, snapping a five- day losing streak, on speculation government efforts to shore up banks worldwide will unlock a lending freeze and lure investors back to emerging markets. The rupee rose 0.4 percent to 48.26 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg., Bloomberg
10/13/2008 7:59:57 AM