Dec. 11 (Bloomberg) -- The yen fell to a one-month low against the dollar and euro as speculation the Federal Reserve will accelerate interest-rate cuts boosted stocks and encouraged purchases of higher-yielding assets funded by loans in Japan.

Japan's currency declined versus 15 of the 16 most-actively traded currencies as Asian and European equities rose and traders increased bets on a half-percentage point cut by the Fed today. The yen has weakened 1 percent against the dollar in the past five days.

``There's some risk appetite back in the market and the yen is under pressure,'' said Niels From, a currency strategist at Dresdner Kleinwort in Frankfurt. ``One of the drivers of risk appetite is that there are some expectations that the Fed is going to act to avoid a sharper slowdown in the U.S.''

The yen dropped to 112.14 per dollar, the lowest since Nov. 9, before trading at 111.95 at 9:43 a.m. in London, from 111.71 late in New York yesterday. It may fall to as low as 112.60 per dollar today, according to From. The yen also slipped to 164.76 per euro, from 164.33.

The Japanese currency has declined most since Dec. 5 against the Australian and New Zealand dollars, favorites of the carry trade, in which traders borrow in low-yielding currencies to invest in higher-interest-rate assets elsewhere.

The Bank of Japan's benchmark interest rate is 0.5 percent, the lowest among industrialized nations, compared with 8.25 percent in New Zealand, 6.75 percent in Australia and 5 percent in Norway.

The Australian dollar has gained 2.9 percent and New Zealand's 2.7 percent against the yen in the past five days.

Euro Little Changed

The euro was little changed at $1.4710, the British pound was at $2.059 from $2.0461 and the Swiss franc was at 1.1301 versus the dollar from 1.1281.

Futures contracts on the Chicago Board of Trade show traders stepped up wagers on a half-point rate cut today by the Fed that would leave the target rate at 4 percent. The odds were at 28 percent today, from 26 percent yesterday. A cut of at least a quarter point is a certainty, futures trading shows.

Japan's currency fell as stock markets advanced. The MSCI World index rose as much as 0.2 percent, to 1643.64. The MSCI Asia Pacific Index added as much as 1 percent to 165.15.

Investor concern over credit losses eased after Government of Singapore Investment Corp. and an unidentified Middle Eastern investor agreed to inject $11.5 billion into UBS AG to replenish the Swiss bank's capital. Citigroup Inc., the biggest U.S. bank by assets, announced last month a $7.5 billion cash infusion from the state-owned Abu Dhabi Investment Authority.

``Growing sovereign wealth funds have funds to put to work and are an important stabilizing influence,'' Greg Gibbs, a currency strategist in Sydney at ABN Amro Holding NV, wrote in a note to clients.

ECB Policy Makers

Europe's single currency rose for a fourth day against the yen after European Central Bank council member Erkki Liikanen and executive board member Juergen Stark yesterday signaled the ECB may raise interest rates next year to fight inflation.

``The ECB appears to be mulling a rate hike,'' said Nobuaki Tani, a client manager in Tokyo at Resona Bank Ltd., a unit of Japan's fourth-largest publicly traded lender. ``The euro is being bought.''

The euro may strengthen to $1.4780 and 165.00 yen today, Tani forecast.

Traders raised bets the ECB will increase borrowing costs from 4 percent next year, interest-rate futures show. The implied rate on the Euribor futures contract for March rose to 4.575 percent today from 4.455 percent a week earlier.

Volatility implied by dollar-yen options expiring in one week with a strike price near current levels was at 11.85 percent from 11.125 percent yesterday. Traders quote implied volatility, a measure of expectations for future currency moves, as part of pricing options.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

Last Updated: December 11, 2007 05:00 EST