Nov. 5 (Bloomberg) -- The euro fell against the dollar after European Central Bank member Juergen Stark said policy makers are ready to use interest-rate policy to bolster the region's shrinking economy.

The 15-nation currency also declined versus the yen as Stark's comments, cited by the Financial Times Deutschland in an interview, bolstered expectations the ECB will lower its 3.75 percent benchmark rate at a meeting tomorrow. The South Korean won led gains in Asian currencies as a surge in global stocks encouraged investors to return to emerging markets.

``Our basic view is euro depreciation,'' said Osamu Takashima, chief analyst for global market sales and trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly listed lender. ``Economic momentum in the euro- zone has decreased dramatically. I expect the ECB to continue monetary easing into the first half of next year.''

The euro fell to $1.2938 at 12:08 p.m. in Tokyo from $1.2981 late yesterday in New York. It weakened to 129.04 yen from 129.47 yen. The dollar bought 99.76 yen from 99.70. The euro may decline to $1.18 in the third quarter of next year, Takashima said.

``We're ready to use all instruments at our disposal and the main instrument is interest-rate policy as long as our mandate'' to contain inflation ``allows it,'' Stark was quoted as saying. The inflation environment ``dramatically changed,'' he added.

The ECB will lower its main refinancing rate by a half- percentage point to 3.25 percent tomorrow, according to all 54 economists in a Bloomberg News survey.

Election Day

The won rose to 1,262 per dollar from 1,288.25 in late Asian trading yesterday as regional stocks tracked a rally on Wall Street. The MSCI Asia Pacific Index gained 4.2 percent after U.S. shares posted their biggest presidential Election Day rally in 24 years. The Philippine peso rose 0.7 percent to 48.10 per dollar.

Republican presidential nominee John McCain claimed 130 electoral votes, while Democratic rival Barack Obama took 207, television networks projected. A candidate needs 270 votes to win.

``If Obama wins by a large margin, that would raise expectations for bold policy measures and support the dollar,'' said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. in Tokyo. ``The markets aren't expecting McCain to win. If he did, that would be a negative surprise that would temporarily work against the dollar.''

The dollar may move between 99 yen and 101 yen today, he said.

Strong Yen

The yen's real effective exchange rate, a measure of the currency's value against those of Japan's trading partners after adjustments for price trends, rose 11.2 percent in October from the previous month, the biggest gain on record, Bank of Japan data showed today. The index was at 111.1, the highest since August 2005.

``The yen is the strongest currency,'' said Yuji Kameoka, senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``A global economic slowdown and declining asset prices will lead to further yen gains.''

Japan's currency may rise to 91 per dollar and 115 versus the euro this year, he said.

The pound was little changed, paring a loss, to trade at $1.5943 after a report showed Britain's construction industry contracted in October at the fastest pace in more than a decade. The Bank of England will cut its main interest rate by a half- percentage point to 4 percent tomorrow, according to the median forecast of 60 economists surveyed by Bloomberg News.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net

Last Updated: November 4, 2008 22:11 EST