Dollar, Yen Drop

The dollar and the yen declined the most against the euro in a week as central banks acted to stem the economic slump, reducing the currencies’ haven appeal.

The yen fell against the South African rand and Norway’s krone as the Bank of Japan said it will accept lower-grade corporate debt as collateral for loans. China’s yuan traded near a five-month low versus the dollar on bets the central bank favors a weaker currency two days before U.S. Treasury Secretary Henry Paulson visits Beijing to push for appreciation.

The greenback fell 0.8 percent to $1.2711 per euro at 3:37 p.m. in New York, from $1.2611 yesterday. The yen dropped 1 percent to 118.67 per euro from 117.52. Japan’s currency traded at 93.32 against the dollar, compared with 93.19, after touching 92.63, the strongest since Oct. 28.

The yuan fell to the five-month low of 6.8873 per dollar before paring its drop after touching the daily trading limit. It slid 0.7 percent yesterday, the biggest loss since the central bank ended a fixed exchange rate in 2005.

Australia’s dollar gained 0.2 percent to 64.16 U.S. cents after the Reserve Bank of Australia cut the target lending rate by a percentage point to a six-year low of 4.25 percent. Policy makers said the cash target is now at a level that will stimulate growth.

The yen depreciated 1.6 percent to 9.01 versus the rand and 1.4 percent to 13.26 against the krone on speculation investors will slow the unwinding of carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher., Bloomberg
12/2/2008 1:08:40 PM