Nov. 9 (Bloomberg) -- The yen rose to the highest level since May 2006 against the dollar as concern over credit-market losses and tumbling stocks led investors to shun higher-yielding assets bought with loans in Japan.

The yen posted its biggest weekly advance since December 2005 after speculation Barclays Plc, Britain's third-biggest lender, would write down assets. The yen may rise to 100 per dollar by the end of 2008, Lehman Brothers Holdings Inc. and Deutsche Bank AG said. The dollar rebounded from a record low versus the euro as investors bought Treasury bills for safety.

``Risk aversion is coming back to the markets,'' said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world's biggest currency trading bank. ``The writedowns from financial companies tell you that subprime is a significant issue and dealing with its hangover is going to take some time. The yen will continue to benefit.''

The yen advanced 1.7 percent to 110.66 per dollar at 4 p.m. in New York and earlier touched 110.51. The Japanese yen rose 1.8 percent to 162.38 per euro. The dollar was little changed at $1.4670 per euro from $1.4676, rebounding from a record low of $1.4752 earlier today.

The Japanese currency has gained 3.7 percent against the dollar this week and 2.6 percent versus the euro. The dollar lost 1.1 percent versus the euro over the same period.

Investors also bought the Swiss franc for safety, pushing it to as high as 1.1189 per dollar, the strongest level since April 1995. They retreated from higher-yielding currencies in Australia, New Zealand and South Africa.

Dollar Gains

The dollar rose from a 26-year low against the pound and advanced versus currencies in Australia, New Zealand and Canada as investors bought Treasury bills, sending yields to the lowest level since August when fears of losses from subprime investments were at their peak. The Standard & Poor's 500 Index declined 1.1 percent.

Barclays shares were temporarily placed into a so-called volatility auction today after speculation of a writedown of as much as 10 billion pounds ($21 billion) on its assets prompted the drop. Barclays Chief Executive Officer John Varley wrote to employees today to reassure them that the bank's ``silence'' indicates speculation about possible writedowns is false.

Wachovia Corp., the fourth-largest U.S. bank, set aside as much as $600 million for loan losses this quarter. Fannie Mae, the biggest source of money for U.S. home loans, posted a third- quarter loss, saying profit in the first nine months of the year fell 57 percent.

`Risk-Aversion Call'

``It's a risk-aversion call,'' said Sophia Hardy, a currency strategist at UBS AG in Stamford, Connecticut. ``You are seeing higher demand on U.S. short-term government debt. That tells you that the subprime issue is still on the forefront. It speaks of safe-haven flow that benefits the dollar.''

The dollar dropped against 11 of 16 major currencies this week as prospects of an interest-rate cut next month dimmed the allure of U.S. assets. The European Central Bank kept its key rate at 4 percent yesterday while the Federal Reserve reduced its target rate on overnight loans between banks to 4.5 percent on Oct. 31.

Fed Chairman Ben S. Bernanke said in testimony to lawmakers yesterday the economy will cool ``noticeably'' in the fourth quarter. The Reuters/University of Michigan preliminary consumer confidence index for November fell to a two-year low of 75 from 80.9 in October.

The dollar's 10.1 percent decline this year against the euro has helped narrow the U.S. trade deficit as a falling currency boosted exports to a record. The trade shortfall in September shrank to $56.5 billion, the smallest since May 2005, the Commerce Department said today in Washington.

Trichet, Flaherty

ECB President Jean Claude Trichet said yesterday the decline in the dollar has been ``brutal'' while Canadian Finance Minister Jim Flaherty said he's ``concerned'' by the surge in the Canadian dollar, which rose to the highest this week since it was floated in 1950. French President Nicolas Sarkozy told a joint session of the U.S. Congress on Nov. 7 that the Bush administration must stem the dollar's plunge or risk triggering a trade war.

U.S. Treasury Secretary Henry Paulson reiterated yesterday his support for a ``strong'' dollar and that a currency's value should be based on economic fundamentals.

The euro strengthened above $1.4536 this week, which is the equivalent to the deutsche mark's record high of 1.3455 against the dollar in March 1995.

Europe's single currency will trade at $1.44 by year-end, according to the median forecast of 40 analysts and brokerages surveyed by Bloomberg News.

Dollar Weakness

The U.S. currency has weakened this quarter against all 16 most-active currencies as the world's biggest banks have written down at least $40 billion in assets tied to U.S. subprime mortgages. Morgan Stanley, the second-biggest U.S. securities firm by market value, said yesterday it lost $3.7 billion in the two months through Oct. 31.

Bank of America, the second-largest U.S. bank, initiated a trade today to buy the Australian dollar against the U.S. currency. The Australian dollar is likely to test 96.50 U.S. cents, the highest since Australia's currency was floated in 1983, according to a research note today. The bank didn't specify the timing.

The Australian dollar touched 94.01 U.S. cents on Nov. 7, the strongest level since 1984.

Interest-rate futures traded on the Chicago Board of Trade show 98 percent odds the U.S. central bank will cut rates by a quarter-percentage point to 4.25 percent on Dec. 11, compared with 68 percent a week ago.

The yuan posted the biggest weekly advance against the dollar in two years after Paulson said China is ``out of step'' with calls to let its currency appreciate. The Chinese central bank set the reference rate today at the highest since 2005 at 7.4162 per dollar.

To contact the reporter on this story: Min Zeng in New York at mzeng2@bloomberg.net.

Last Updated: November 9, 2007 16:03 EST