July 10 (Bloomberg) -- The euro fell, heading for its worst week against the yen in two months, after Handelsblatt reported the International Monetary Fund is discussing aid programs with at least 10 Eastern European governments.

Europe’s currency weakened versus 12 of its 16 major counterparts after the German newspaper cited unidentified IMF officials as saying the countries applying for loans for the first time included Bulgaria, Croatia and Macedonia. The yen and the dollar rose against most major currencies as U.S. stock futures fell, boosting demand for safer assets. South Korea’s won completed its biggest weekly loss in four months as demand for emerging-market assets declined.

“There are lingering worries over the financial health of eastern and central European countries,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Investors are still risk averse, so they’re likely to sell the euro and buy the yen and dollar as safe-haven currencies.”

The euro declined to 129.09 yen as of 7:58 a.m. in London from 130.36 yesterday in New York, set for a 3.8 percent loss this week, the biggest since the period ended May 15. Europe’s currency dropped to $1.3947 from $1.4020. Japan’s currency rose to 92.64 per dollar from 92.99. The won fell 0.3 percent to 1,282.50 per dollar.

The Nikkei 225 Stock Average trimmed its advance to close little changed after earlier rising as much as 0.9 percent. Futures on the Standard & Poor’s 500 Index declined 0.3 percent.

‘Systemic Risks’

The euro headed for a second weekly loss against the dollar after Finance Minister Peer Steinbrueck said yesterday Germany’s regional state banks are the “biggest systemic risk” to the nation’s financial industry.

Ukraine, Serbia, Romania, Belarus and Latvia aim for faster payment of IMF funds or an increase of existing loans, Handelsblatt also reported, citing the IMF officials.

“People are still cautious about the sustainability of a recovery,” said Takao Yahata, senior manager of foreign exchange and financial-products trading in Tokyo at Mitsubishi UFJ Trust and Banking Corp., a unit of Japan’s largest publicly traded lender by assets. “As risk-aversion resurfaced, buying- back of the yen against higher-yielding currencies may continue.”

Losses in the euro accelerated after so-called stop-loss orders on investors’ positions on the currency were activated around $1.40, said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. A stop-loss order is an automatic instruction to sell or buy a currency should it reach a particular level.

Overseas Assets

The yen headed for a fourth week of gains against the Australian dollar on signs Japanese investors are losing appetite for overseas assets.

Nikko Asset Management Co. said it collected 4.9 billion yen ($52.7 million) in new funds for three high-income sovereign funds, investing in the Brazilian real, South Africa’s rand and Turkish lira, which launched today, compared with the pre- registered amount of 300 billion.

“Individual investors are not 100 percent certain about the prospect of the global recovery, which if continued, should have favored the currencies of resource-rich nations,” said Morio Okayasu, chief analyst at Monex FX Inc., a unit of Japan’s third-largest online broker.

Closely Watching

The yen earlier pared its weekly gain against the dollar after Japanese Economy Minister Yoshimasa Hayashi said the government will closely watch the stock market and the appreciation of the yen.

“If the yen’s rise and stock declines last a long time, there are concerns they may have a negative impact on both exporter and overall sentiment,” Hayashi told reporters today.

A stronger yen may squeeze corporate profits of exporters and hurt households by eroding their wages, Japan’s Vice Finance Minister Kazuyuki Sugimoto said at a press conference in Tokyo yesterday said.

“As the ongoing recovery is still fragile, we can’t rule out the possibility of the Bank of Japan intervening in the market to prevent the appreciation of the yen if the currency breaches 90 per dollar,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co.

South Korea’s won led Asian currencies lower as sliding stock markets and concern about the pace of the global economic recovery damped appetite for riskier assets.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks Asia’s 10 most-traded currencies excluding the yen, was poised for a sixth weekly decline in seven. The Kospi share index dropped as foreign investors sold more local shares than they bought, exchange data show.

“The dominant theme is still risk, growth is a secondary issue,” said Julian Wee, a Singapore-based economist at IDEAglobal. “The market’s paring back its optimism and Korea is vulnerable.”

The won fell 1.3 percent this week, the largest decline since the period ended Feb. 27.

-- With assistance from David Yong in Singapore. Editors: Nicholas Reynolds, Nate Hosoda

To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Last Updated: July 10, 2009 03:03 EDT