Nov. 5 (Bloomberg) -- The yen traded near a two-week low against the dollar as a rally in global stocks encouraged investors to buy higher-yielding assets funded by low-cost loans in Japan's currency.

The yen was also near the lowest in a week versus the euro as U.S. shares posted their biggest presidential Election Day rally in 24 years on gains in commodity prices and speculation the U.S. Treasury will bail out more companies. Japan's currency declined against the South African rand as a thaw in money markets encouraged so-called carry trades.

``Looking at stocks and credit markets, you can say that risk sentiment is improving,'' said Masanobu Ishikawa, Tokyo- based general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``The yen is likely to weaken further.''

The yen traded at 99.88 per dollar as of 8:23 a.m. in Tokyo from 99.70 late yesterday in New York, when it reached 100.55, the lowest since Oct. 22. The yen was at 129.98 against the euro from 129.47 yesterday, when it touched a one-week low of 130.98. The euro was little changed at $1.3009.

The London interbank offered rate, or Libor, that banks charge each other for one-month loans in dollars slid for a 17th day yesterday as central-bank cash injections and interest-rate cuts worldwide helped revive lending. The rate dropped 0.18 percentage point to 2.18 percent, the lowest level since November 2004, according to the British Bankers' Association.

Money Markets

``It comes back to what's going on in money markets and credit markets,'' said Jens Nordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``Risk premiums embedded in risky assets overall are very, very elevated. Any kind of stability is going to make those risk premiums come down.''

U.S. stocks gained yesterday in the biggest rally on a presidential Election Day since it stopped being a trading holiday in 1984. The Standard & Poor's 500 Index closed above 1,000 for the first time since Oct. 13, increasing 4.1 percent.

``The election so far is playing out as supportive of risk, supportive of some of the other variables that are giving out positive risk-appetite signals,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``The dollar has had a very consistent relationship of late where equity strength is associated with dollar weakness.''

The yen fell 0.6 percent to 10.3125 against the South African rand and 0.3 percent to 60.59 versus the New Zealand dollar on speculation the stock rally will boost carry trades, in which investors 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 12 percent in South Africa and 6.5 percent in New Zealand.

European Rates

The pound fell to 81.57 pence per euro from 81.34 yesterday as a report showed Britain's construction industry contracted in October at the fastest pace in more than a decade. The Bank of England will cut its main interest rate by a half-percentage point to 4 percent tomorrow, according to the median forecast of 60 economists surveyed by Bloomberg News.

The European Central Bank will lower its main refinancing rate by a half-percentage point to 3.25 percent tomorrow, according to the median forecast of 54 economists. The Reserve Bank of Australia lowered its cash rate by 0.75 percentage point to 5.25 percent yesterday.

The dollar may strengthen as President George W. Bush leaves office, according to Derek Halpenny, head of global currency strategy in London at Bank of Tokyo-Mitsubishi Ltd.

``Given that the vast majority of his presidency was associated by the markets with a benign neglect of the U.S. dollar, his departure has been taken as dollar-positive,'' Halpenny wrote yesterday in a note to clients.

The greenback has gained every year after a presidential election since 1985, Halpenny wrote. The U.S. currency has weakened 28 percent since Bush was inaugurated in 2001.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net.

Last Updated: November 4, 2008 18:47 EST