June 16 (Bloomberg) -- The dollar fell before a report that may show American manufacturing declined for a seventh month. Stocks rose in Europe for the first time in three days and U.S. futures gained, recovering from earlier losses, as German investor confidence climbed to a three-year high.

The dollar dropped against 15 of the 16 most-traded currencies at 11:58 a.m. in London, losing 0.5 percent versus the euro and 1.1 percent compared with the yen. The Dow Jones Stoxx 600 Index of European shares rose 0.6 percent and futures on the Standard & Poor’s 500 Index added 0.3 percent, indicating the benchmark index of U.S. equities will rebound from its biggest drop in a month. The dollar’s decline helped send oil above $72 a barrel in New York.

The Federal Reserve may say today that U.S. industrial production slipped 1 percent in May, according to a Bloomberg survey of 73 economists. The ZEW Center for European Economic Research said its index of investor confidence rose more than economists forecast, pushing the euro higher against the dollar.

“We have had better-than-expected data in the recent past but we cannot say it’s a sign we are out of the woods,” said Mickael Benhaim, who manages about $32 billion as head of global bonds at Pictet & Cie Banquiers in Geneva. “We’re not yet ready for a full recovery.”

Gold rose 1 percent to $936.50 an ounce in London, advancing for the first time in five days. Crude oil gained as much as 2.1 percent to $72.12 a barrel after falling below $70 in New York for the first time in a week. Copper advanced 1.3 percent to $5,069 a ton on the London Metal Exchange.

S&P Futures

U.S. futures rose after yesterday’s 2.4 percent slump. Europe’s Stoxx 600 index increased after yesterday’s 2.5 percent slide, the biggest since May 13.

The 40 percent rally in the S&P 500 from March 9 through last week left the index valued at 14.9 times its companies’ earnings, near the highest since October.

The Stoxx 600 trades at 25.4 times profit, the most expensive level since March 2004, weekly Bloomberg data show. The MSCI World Index of 23 developed countries has a ratio of 18.2, a level not seen since 2004.

The S&P 500 traded as low as 10.1 times profit on March 9, the cheapest level since 1985, after the collapse of Lehman Brothers Holdings Inc. and the first global recession since World War II had sent the benchmark index for U.S. equities to a 17-month, 59 percent decline.

Unlocking Credit

Stock valuations rebounded as the $12.8 trillion pledged by the U.S. government and Fed helped unlock credit markets and slow the pace of economic deterioration.

The Libor-OIS spread, which measures banks’ reluctance to lend, has narrowed to 40 basis points, or 0.40 percentage point, from a record 364 basis points in October. Analysts covering S&P 500 companies began to boost 2009 profit estimates for the first time this year in May as economists predicted the U.S. economy will start to expand next quarter, weekly data compiled by Bloomberg show.

The Mannheim-based ZEW Center said today its index of investor and analyst expectations, which aims to predict economic developments six months ahead, increased to 44.8 in May from 31.1. That’s the highest reading since May 2006. Economists expected a reading of 35, according to the median of 35 forecasts in a Bloomberg News survey.

The yen advanced to 96.74 per dollar and to 134.38 per euro after appreciating to 132.74 against the euro earlier in the session, the strongest level since May 28.

Yield Spread

Treasuries were little changed, with the 10-year note yielding 3.72 percent, before the Fed buys notes due from May 2012 to November 2013 today as part of efforts to cap borrowing costs. The yield has added 119 basis points since the Fed said March 18 it would buy as much as $300 billion of government securities over six months.

The difference in yield, or spread, between two- and 10- year securities narrowed to 2.47 percentage points today, the least in a week, as investors became less concerned inflation will accelerate, encouraging them to buy longer-dated securities.

Credit markets slumped, wiping out this month’s rally, according to the Markit iTraxx Crossover Index of credit-default swaps. The index of contracts on 45 companies with mostly high- yield credit ratings rose 3 basis points to 720, the highest since May 29, according to JPMorgan Chase & Co. An increase signals deteriorating perceptions of credit quality.

The MSCI Emerging Markets Index, a benchmark for equities in 22 developing economies, dropped 0.5 percent to the lowest since May 28, led by declines in the Philippines and Romania.

The Philippine Stock Exchange Index decreased the most in three months, dropping 3.8 percent. Romania’s BET index slid 2.8 percent to the lowest since May 29, while stocks in Abu Dhabi’s ADX General Index fell 2.8 percent, the biggest decline since April 27.

Poland’s WIG20 index slid 2 percent after European affairs minister Mikolaj Dowgielewicz said the country may have difficulties reaching its goal of entering the euro-currency system in 2012.

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

Last Updated: June 16, 2009 07:31 EDT