March 9 (Bloomberg) -- The Australian and New Zealand dollars advanced as the U.K. government said it will cover 260 billion pounds ($367 billion) of assets at Britain’s biggest mortgage lender, bolstering investors’ appetite for risk.

The currencies also gained against the yen as Japan posted its first current-account deficit in 13 years in January after the nation’s exports collapsed. Gains in the South Pacific currencies may be limited before a report March 12 likely to show Australia’s unemployment rate climbed to the highest since April 2006. The same day, the Reserve Bank of New Zealand is forecast to cut interest rates from a record low 3.5 percent.

“The U.K. government agreeing to provide asset protection seems to have helped risk aversion a little,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The Aussie, while higher, is still in the trading range it has become accustomed to,” she said, using the currency’s nickname.

Australia’s currency rose 0.1 percent to 64.11 U.S. cents as of 4:23 p.m. in Sydney from 64.05 cents in New York late last week. The currency advanced 0.1 percent to 63 yen.

New Zealand’s dollar gained 0.1 percent to 50.29 U.S. cents from 50.25 in New York last week. It bought 49.43 yen from 49.40.

Australia’s dollar will likely trade between 62.50 U.S. cents and 65.50 cents, while New Zealand’s will trade between 49.20 and 52 U.S. cents this week, Deda said.

Dow Rally

The Dow Jones Industrial Average rallied more than 150 points in the final hour of trading on March 6 as Lloyds Banking Group Plc said it will cede control to Prime Minister Gordon Brown’s government in return for state guarantees.

Japan’s deficit stood at 172.8 billion yen ($1.76 billion), the Ministry of Finance said in Tokyo today. The median estimate of 22 economists surveyed by Bloomberg News was for a shortfall of 15.3 billion yen.

New Zealand construction work contracted for a fourth straight quarter and house prices fell by the most in at least four years as rising unemployment stall the property market, according to separate government reports today.

The nation’s economy is in its fifth quarter in recession, Finance Minister Bill English said last month. RBNZ governor Alan Bollard will lower borrowing costs to 3 percent from 3.5 percent according to six of 13 economists surveyed by Bloomberg News.

The so-called kiwi may test support at 49.50 U.S. cents as the central bank decision approaches, said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. Support is a level where buy orders may be clustered.

Unemployment

The number of people employed in Australia probably fell by 20,000 and the unemployment rate likely rose to 5 percent in February, reports next week will show, according to the median estimates of economists surveyed by Bloomberg News.

“Any unexpected spike higher in the unemployment data is likely to keep a lid on the Aussie dollar and reinforce the fact that the Reserve Bank of Australia still has work to do,” said Sue Trinh, a Sydney-based senior currency strategist at RBC Capital Markets.

The RBA left rates unchanged at 3.25 percent on March 3 saying the lowest borrowing costs in four decades and government spending are bolstering the economy.

World Economy Shrinking?

The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said yesterday.

National Australia Bank Ltd., the country’s biggest lender by assets, today lowered its forecasts for the Australian dollar to 66 U.S. cents by the end of March and 70 cents by June citing concern over the weak outlook for global growth.

“We still need to see a stabilization in stock markets to push the pair significantly higher,” strategists headed by Sydney-based John Kyriakopoulos wrote in a research note today.

The worst may be over for the Aussie, derivatives show. The so-called risk-reversal rate on one-month Australian-U.S. dollar options rallied to a five-month high of minus 1.37 percent today, after dropping to a record on Oct. 27 when the currency slid to 60.10 U.S. cents. Negative values show more demand for options to sell a currency compared with options to buy it.

Futures traders decreased bets that the Australian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a fall in the Australian dollar compared with those on a gain -- so-called net shorts -- was 2,786 on March 3, compared with net shorts of 5,583 a week earlier.

Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of Tuesday.

Australian government bonds rose for a second day. The yield on 10-year notes fell 12 basis points, or 0.12 percentage point, to 4.12 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 1.03, or A$10.30 per A$1,000 face amount, to 109.21.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.18 percent from 3.25 percent on March 6.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Last Updated: March 9, 2009 02:00 EDT