Nov. 19 (Bloomberg) -- The yen and dollar strengthened against the euro as stock markets fell, discouraging demand for higher-yielding assets.

Japan’s currency rose against all of its 16 most-traded counterparts tracked by Bloomberg as equities weakened. The New Zealand dollar was headed for the worst performance against the greenback in the past month among major currencies as the nation’s main opposition party ended its support for the central bank’s priority of containing inflation.

“It’s a risk-off day,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “Equity markets are down, and in that kind of environment the dollar and the yen get bid.”

The yen appreciated 1.2 percent to 131.99 per euro at 7:40 a.m. in New York, from 133.64 yesterday. It earlier climbed to 131.83, the strongest level since Nov. 3. Japan’s currency advanced 0.5 percent to 88.87 against the dollar, from 89.32. The dollar appreciated 0.8 percent to $1.4852 versus the euro, from $1.4963.

The pound fell for a third day versus the dollar, dropping 0.7 percent to $1.6624. Sterling was little changed at 89.33 pence per euro.

The Daily Telegraph cited Experian Plc, the world’s largest credit-checking company, as saying that U.K. banks are in a worse state than those elsewhere.

U.K. Banks

“There are ongoing concerns about the state of the banking sector in the U.K., and that is weighing on sterling,” Jeremy Stretch, a senior currency strategist in London at Rabobank International, said in an interview on Bloomberg Television. “Any move up towards the 90 pence per euro mark is a good level to short euro-sterling again.” A short is a bet that a currency will decline.

New Zealand’s dollar declined as much as 2.4 percent to 72.81 U.S. cents, its biggest intraday drop since Oct. 28, and slid as much as 2.9 percent to 64.70 yen. The kiwi has slid 3.6 percent versus the greenback in the past month.

The nation’s main opposition Labour Party will no longer support the central bank’s primary policy of targeting inflation, saying it wants a competitive exchange rate and lower borrowing costs.

Japan’s currency strengthened versus the euro as the Nikkei 225 Stock Average fell as much as 1.9 percent, the most since Nov. 2.

The dollar also gained on speculation traders trimmed short positions after the currency failed to weaken beyond $1.50 per euro, according to Daisaku Ueno, an analyst in Tokyo at Gaitame.Com Research Institute Ltd., a unit of Japan’s largest currency margin company.

“The euro is struggling to rise above $1.50, a level that puts invisible pressure on investors,” Ueno said.

The Dollar Index, which InterContinental Exchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners including the euro, advanced 0.4 percent today to 75.462.

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

Last Updated: November 19, 2009 07:48 EST