Tuesday, February 5, 2008

Yen Rises to One-Week High Against Euro After Stocks Decline

By David McIntyre

Feb. 6 (Bloomberg) -- The yen climbed against all 16 of the most-traded currencies as a slump in global stocks encouraged investors to pare holdings of higher-yielding assets financed in Japan.

Japan's currency rose the most against the Brazilian real and Australian dollar, popular targets of the so-called carry trade, after U.S. shares tumbled the most in 11 months as service industries contracted at the fastest pace since 2001. The yen advanced to its highest in a week against the euro on speculation slowing U.S. growth will spread to Europe.

``Yen strength will be manifest, particularly against the crosses,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. ``There's still pressure on carry trades as markets in Asia are likely to trade with a downward bias.''

The yen gained to 155.89 per euro at 8:38 a.m. in Tokyo from 156.46 late in New York yesterday. It touched 155.74, the strongest since Jan. 28 and may reach 155 over the next week, Trinh said. Japan's currency strengthened to 106.51 per dollar from 106.82 late yesterday. The euro was at $1.4635.

The yen climbed to 60.9476 per Brazilian real from 61.2458 and advanced to 95.28 per Australian dollar from 95.85.

In carry trades, investors buy higher-yielding assets with money borrowed in countries with lower borrowing costs, such as Japan's 0.5 percent. Australia's benchmark was increased to 7 percent yesterday and Brazil's rate is 11.25 percent. The strategy is considered risky because currency fluctuations can erase the profits between the two rates.

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