Jan. 28 (Bloomberg) -- The yen and the Swiss franc strengthened as global stocks slumped, prompting investors to sell higher-yielding assets funded with loans made in Japan and Switzerland.

The Japanese currency rose the most against currencies such as the Brazilian real and the South African rand as concern global economic growth will slow deepened after stocks in Europe and Asia fell. The Swiss franc rose against 15 of the 16 most- active currencies tracked by Bloomberg today.

``Equity markets are back under pressure once again, and that's going to reduce risk appetite,'' said Ian Stannard, senior currency strategist at BNP Paribas SA, France's biggest bank. ``Low-yielding and safe-haven assets such as the yen and Swiss franc will be outperformers in this kind of environment.''

The yen gained to 106.41 per dollar at 6:38 a.m. in New York, from 106.72 on Jan. 25. The currency was little changed against the euro at 156.65.

The dollar fell to $1.4723 per euro from $1.4681. The Swiss franc rose to 1.0921 per dollar from 1.0967 and to 1.6078 versus the euro from 1.6102.

Japan's currency jumped 1 percent to 14.78 versus the rand and to 59.29 per Brazilian real from 59.82 last week.

The MSCI Asia-Pacific Index fell 3 percent, as China's CSI 300 Index slumped 6.8 percent. The Dow Jones Stoxx 600 Index of European shares dropped 1.7 percent to 316.64.

Futures traders have raised bets by the most since November 2004 that the yen will rise, data from the Washington-based Futures Trading Commission last week showed. Traders have nearly tripled the so-called net long positions on the franc during the same period, according to the report.

Currency Swings

One-month implied volatility for the yen rose to 14.13 percent today, from 12.7 percent on Jan. 25. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Higher volatility may discourage carry trades.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between them. The risk is that currency moves erase those profits. Japan's 0.5 percent benchmark interest rate compares with the U.K.'s 5.5 percent, Canada's 4 percent and South Africa's 11 percent.

The dollar fell against the euro before a U.S. government report forecast to show sales decreased to the lowest in 12 years. Sales of new homes slowed to an annual pace of 645,000 units in December from 647,000 the previous month, according to a Bloomberg News survey. The Commerce Department releases the data at 10 a.m. in Washington.

Fed Outlook

The U.S. currency has fallen against nine of the 16 most- active currencies since the Federal Reserve lowered interest rates last week to prevent credit market losses from causing a recession. Futures traders are betting the Fed will lower them again by at least a quarter-point at its Jan. 30 meeting.

``It's too early to buy the dollar,'' said David Woo, London-based head of global currency strategist at Barclays Capital, the world's fifth-biggest currency trader. ``Some people are looking to buy the dollar because they are betting other central banks will soon follow the Fed. Our view is that it's not a good time to buy because the Fed will continue to be more aggressive than others in cutting rates.''

Futures on the Chicago Board of Trade show a 70 percent chance the Fed will cut its target rate 50 basis points to 3 percent this week, up from zero a week ago. The remaining odds are for a 25 basis-point cut.

Recession `Inevitable'

Former Fed Chairman Alan Greenspan said last week ``some form'' of global recession ``is inevitable at some point.''

Further declines in the dollar may be limited. UBS AG said in its report today that investors bought a net $1.63 billion of U.S. stocks last week, the first time they bought more than they sold after 14 executive weeks of outflows.

The currencies of Australia, New Zealand and Brazil were buoyed against the dollar by the global interest-rate outlook. Economists predict central bankers in those countries will keep rates unchanged or even raise them. The three countries are best positioned to weather a slowdown in the U.S. because a rising percentage of their goods are headed to China, where growth may average 10.3 percent this year.

Kokusai Asset Management Co., Pacific Investment Management Co. and Putnam Investments LLC are investing in southern- hemisphere countries to benefit from the highest bond yields relative to U.S. debt this decade.

Kiwi, Aussie

New Zealand's currency, known by traders as the kiwi, traded at 77.17 U.S. cents, from 76.79 cents on Jan. 25. The real was at 1.7950 per dollar from 1.7855 and the Australian dollar, nicknamed the aussie, was little changed at 88 U.S. cents.

The yuan advanced to 7.1957 per dollar, the highest since the end of a fixed-exchange rate in July 2005 on speculation China is seeking to curb inflation and moderate growth in the world's fourth-largest economy.

Figures from the Washington-based Commodity Futures Trading Commission last week showed the difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs - - was 41,842 on Jan. 22, the most since November 2004.

Hedge funds and other speculative investors are putting more money ``on yen appreciation,'' said Sean Callow, senior currency strategist at Westpac Banking Corp. in Singapore. ``That's a bet on weakness in equities and declines in risk appetite.''

The yen may move between 105.60 and 108.25 against the dollar this week, Callow forecast.

Futures Bets

Traders raised net longs for the franc to 15,376 from 5,162 in the prior week.

Futures traders also reduced bets on the rising euro, the CFTC data also showed. Net euro longs fell to 23,745 on Jan. 22 from 44,982 on Jan. 15.

Gains in the euro may be limited after French officials increased pressure on the European Central Bank, led by President Jean-Claude Trichet, to keep interest rates on hold.

``I hope in addition to being in charge of price stability he will be sensitive to comments from throughout Europe,'' French Finance Minister Christine Lagarde told a meeting of the World Economic Forum in Davos, Switzerland on Jan. 26.

``The ECB's next move should be a rate cut, not a rate rise, due to Europe's slowing economy,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender by assets. ``This will weaken the euro to $1.42 by the end of March.''

The Frankfurt-based ECB hasn't followed the Fed, Bank of England and Bank of Canada in cutting interest rates, choosing to leave its benchmark interest rate at 4 percent at a time when inflation is above its 2 percent limit.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net

Last Updated: January 28, 2008 06:50 EST