Aug. 17 (Bloomberg) -- The yen was poised for its biggest weekly gain versus the dollar and euro in almost nine years as traders dumped investments funded by loans in Japan.

The yen rose against all currencies this week as turmoil in credit markets and a global rout in corporate bonds and stocks prompted an exodus from so-called carry trades. The Japanese currency had its steepest advance in more than three decades versus the New Zealand dollar, a favorite for such trades.

``Credit problems are now spreading across markets,'' said David Simmonds, global head of currency research at Royal Bank of Scotland Plc in London. ``There's a disorderly rush'' to buy yen.

Japan's currency climbed to 111.61 per dollar, the first time it has strengthened beyond 112 since June 2006, and was at 113.30 as of 7:41 a.m. in New York. It has gained 4.3 percent from 118.40 a week ago.

The yen also rose beyond 150 against the euro for the first time since November, before trading up 5.9 percent on the week at 152.54. The weekly gain was the biggest since the launch of the common European currency in 1999.

The rally in the yen sparked concerns Japanese exporters' earnings will be crimped, contributing to biggest slide in the Nikkei 225 Stock Average since the Sept. 11 terrorist attacks. Toyota Motor Corp.'s shares fell the most in six years. Japan's five-year debt had the biggest weekly gain since the government started issuing the securities in 2000.

`Crisis' Signaled

UBS AG said its Risk Index reached a record 3.07, higher than after the Sept. 11 attacks and the collapse of hedge fund Long-Term Capital Management LP in October 1998.

Volatility on one-month dollar-yen options rose to 23.5 percent, the highest since January 1999, and volatility on one- month euro-yen options gained to 23.50 percent, the highest since September 1999. Higher volatility discourages carry trades as it implies the bets will be exposed to greater exchange-rate fluctuations.

``Volatility is extremely high as the markets are staying choppy,'' said Masashi Kurabe, currency manager at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. ``This is conducive for yen buying.''

The Reserve Bank of Australia bought its currency after it fell 4 percent versus the U.S. dollar, the most since at least 1983. Australia's currency is favored for carry trades because its interest rate is 6 percentage points higher than Japan's. It fell to 87.41 yen from 90.10 yen in New York yesterday.

Australian Buying

The global credit crunch has made financial markets ``extremely skittish,'' central bank Governor Glenn Stevens said today on Queensland's Gold Coast. ``Where market conditions are disorderly, we are prepared to intervene from time to time.''

New Zealand's dollar, another carry-trade favorite, was at 76.99 yen from 78.37 yen.

The euro headed for its biggest weekly loss versus the dollar since June 2006 on speculation the global credit market turmoil will prompt the European Central Bank to delay raising interest rates in September.

``The ECB may postpone a rate hike next month,'' said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo. ``It would be a bit negative for the euro.''

Interest-rate futures show traders pared bets on one more rate increase from 4 percent this year. The implied yield on the December Euribor contract was at 4.33 percent, down from 4.37 percent on Aug. 10. The contract settles to the three-month interbank offered rate for the euro, which has averaged about 16 basis points above the ECB key rate since 1999.

ECB Rate Bets

The U.S. currency may weaken on speculation a report today will show consumer confidence in the biggest economy fell in August, backing the case for the Federal Reserve to lower rates.

``The risk is definitely to the downside in terms of how it should impact the economy,'' said Thomas Harr, a senior foreign- exchange strategist at Standard Chartered Plc in Singapore. ``In the near term, we can see further dollar weakness.''

Builders started work on the fewest homes in a decade in July and manufacturing in the Philadelphia region unexpectedly stalled this month, reports showed yesterday.

The dollar traded at $1.3463 per euro from $1.3426. It may decline to $1.3900 by the end of September, Harr said.

Fed funds futures show traders see a 64 percent chance policy makers will cut the key rate by 50 basis points to 4.75 percent in September, up from zero percent a week earlier.

The Reuters/University of Michigan's final preliminary index of consumer sentiment fell to 88.0 this month from 90.4 in July, according to a Bloomberg News survey of economists.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

Last Updated: August 17, 2007 08:02 EDT