July 2 (Bloomberg) -- The dollar strengthened after a Chinese Foreign Ministry official said he hoped the greenback would remain stable and was “not aware” of a plan to discuss a new reserve currency at next week’s Group of Eight meeting.

The dollar climbed from a three-week low versus the euro after falling yesterday when Reuters reported that China had asked to debate proposals for a new global reserve currency at the G-8 summit in Italy. The yen rose from near a two-week low against the euro on speculation a U.S. report today will show the world’s biggest economy lost jobs for an 18th month, spurring demand for the safety of Japan’s currency.

“The minister’s remarks are definitely supportive of the dollar,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “It’s extremely difficult to move to a new reserve currency. For China, the value of their U.S. holdings would drop.”

The dollar climbed to $1.4119 per euro as of 7:40 a.m. in London from $1.4142 in New York yesterday, when it declined to $1.4201, the lowest since June 5. The U.S. currency was at 96.66 yen from 96.65 yen. The yen rose to 136.44 per euro from 136.70 yesterday, when it fell to 136.89, the weakest since June 15.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, advanced 0.2 percent to 79.764.

“We hope that as the main reserve currency the exchange rate of the U.S. dollar will be stable,” China’s Vice Foreign Minister He Yafei told reporters in Beijing. “This international financial crisis has fully exposed the weaknesses and loopholes in the international monetary system.”

Greater Role

China’s central bank in its 2008 review released last week renewed its call for a new global currency. The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves.

The yen strengthened versus 14 of the 16 major currencies as today’s U.S. employment report may show the jobless rate increased to the highest level since 1983, suggesting the global recession will be prolonged.

U.S. employers cut 365,000 jobs last month after reducing them by 345,000 in May, according to a Bloomberg News survey of economists before the Labor Department report. The unemployment rate climbed to 9.6 percent, a separate Bloomberg survey showed.

“I will certainly expect the yen to strengthen if the payroll data comes in worse than expected because of risk- appetite flow,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd., Australia’s fourth-biggest lender.

U.S. Jobs

The U.S. lost more jobs than forecast last month, an industry report showed yesterday. The 473,000 drop in the ADP Employer Services gauge in June was higher than the forecast of 394,000 in a Bloomberg survey of economists, and it followed a revised reduction of 485,000 workers in May.

“The number will need to deviate at least 10 to 20 percent from consensus,” Brian Kim, a currency strategist in Stamford, Connecticut, wrote in a note yesterday. “A weaker number should be positive news for bonds and the U.S. dollar and negative news for stocks. A higher-than-expected figure would be good news for market sentiment and hence could hurt the U.S. dollar.”

Japan’s currency typically strengthens in times of financial turmoil as the nation’s trade surplus makes the currency attractive because the country does not rely on overseas lenders.

ECB Meeting

The euro traded near a one-week high against the pound on prospects the European Central Bank will refrain from cutting interest rates at a meeting today, maintaining the appeal of the region’s assets.

“For the euro-dollar, a test of $1.4200 may remain imminent if the course of events later today encourages risk- taking behavior,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore, wrote in a research note today.

ECB policy makers have used up their scope to reduce borrowing costs, Axel Weber, a council member who heads the Bundesbank, said last week. The central bank may keep the main refinancing rate at 1 percent until the fourth quarter of 2010, another Bloomberg News survey shows.

Europe’s single currency climbed to 85.90 pence from 85.81 pence yesterday, after reaching 86.01 pence, the highest level since June 18.

Australian Dollar

The Australian dollar fell against the U.S. currency and the yen after the trade deficit widened more than economists forecast, signaling the central bank may keep interest rates at a 49-year low for an extended period.

The shortfall widened to A$556 million ($448 million) from a revised A$282 million in April, the Bureau of Statistics said in Sydney. The median estimate in a Bloomberg News survey of economists was for a deficit of A$125 million.

Australia’s currency fell to 80.42 U.S. cents from 80.85 cents in New York yesterday. The so-called Aussie declined 0.5 percent to 77.74 yen.

Gains in the yen were tempered after a government report today showed Japanese investors purchased the most overseas debt in four years.

Japanese investors bought 1.53 trillion yen ($15.8 billion) more foreign bonds than they sold in the week ended June 27, the most since the period ended June 24, 2005, the Finance Ministry said in a report.

“Investors, especially individuals, are increasing their purchases of higher-yielding bonds,” said Yoshisada Ishide, who oversees $2.4 billion as a fund manager at Daiwa SB Investments Ltd. in Tokyo. “They feel more reassured about investing abroad. This trend is likely to persist in the third quarter. The bias is for yen weakness.”

Japan’s benchmark interest rate of 0.1 percent compares with 3 percent in Australia and 2.5 percent in New Zealand, making the South Pacific nations’ assets attractive to investors seeking higher returns.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

Last Updated: July 2, 2009 02:47 EDT