Yen Gains

The yen rose to a one-month high against the dollar and gained versus the euro as falling global manufacturing and stocks prompted bets investors will buy back Japan’s currency at the expense of higher-yielding assets.

The dollar advanced against the euro and the pound as investors sought shelter in U.S. government debt. The yuan dropped the most against the greenback since China ended a fixed exchange rate in 2005, while Russia’s ruble slid to a 2 1/2-year low. The U.S. economy entered a recession in December 2007, the first since 2001, the National Bureau of Economic Research said.

The yen appreciated 2.4 percent to 93.32 per dollar at 3:07 p.m. in New York, from 95.52 last week, after touching 93.05, the strongest level since Oct. 28. The yen gained 2.6 percent to 118.19 per euro from 121.22. The dollar appreciated 0.2 percent to $1.2660 per euro from $1.2691, after touching $1.2583, the strongest since Nov. 24. The U.S. currency will advance to $1.20 by year-end, according to UBS.

The greenback rose 3.1 percent to $1.4910 per pound and 5.1 percent to 49.92 U.S. cents versus New Zealand’s currency on speculation a deepening global slump will encourage investors to shun higher-yielding holdings for Treasuries.

The yuan slid as much as 1 percent to 6.8849 per dollar, the weakest level since June, as the China Federation of Logistics and Purchasing reported that the nation’s manufacturing shrank in November by the most on record.

The ruble fell as low as 28.0325 per dollar, the weakest since March 2006, after VTB Bank Europe’s purchasing managers’ index for manufacturing reached a record low last month. The ruble increased 0.2 percent to 35.3836 per euro on speculation the central bank is selling reserves to arrest the ruble’s depreciation.

Japan’s currency gained 5.7 percent to 138.63 per pound, the biggest jump since October 1998, and 5.3 percent to 49.82 against New Zealand’s dollar as the drop in manufacturing and stocks increased bets investors will unwind carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s target lending rate of 0.3 percent compares with 6.5 percent in New Zealand, 3.25 percent in the euro zone and 3 percent in the U.K., Bloomberg
12/1/2008 12:35:04 PM