June 4 (Bloomberg) -- The euro rose against the yen and pound after European Central Bank President Jean-Claude Trichet said he sees signs the worst of the recession has passed.

The 16-nation currency also erased a decline versus the dollar as Trichet indicated the ECB had no immediate plans to cut interest rates further and said current levels are “appropriate.” He also said the region’s economic performance will improve this year and that it’s “extremely important” U.S. policy makers are reiterating support for a strong dollar.

Trichet “hedged himself quite nicely by saying rates are appropriate for now, but it doesn’t mean they will be appropriate in the future,” said Geoffrey Yu, a currency strategist at UBS AG in London.

The euro advanced 0.9 percent to 137.11 yen at 4:33 p.m. in New York, from 135.93 yesterday. The euro traded at $1.4180, compared with $1.4162 yesterday after falling as low as $1.4071 earlier. The dollar appreciated 0.7 percent to 96.70 yen, from 95.99.

The ECB held its main refinancing rate at an all-time low of 1 percent after reducing it last month. The bank plans to start buying covered bonds next month to hold down borrowing costs and complete the 60 billion euro ($85 billion) program in June 2010, Trichet told reporters in Frankfurt.

Yen Declines

The euro gained 5.8 percent against the dollar since the ECB last met on May 7 as economic reports added to evidence the most acute phase of the recession passed, damping demand for the U.S. currency as a refuge. The common currency appreciated 3 percent against the yen over the same period.

The yen dropped versus almost all of the 16 most-traded currencies tracked by Bloomberg after Japan’s Ministry of Finance said domestic investors bought about $10.2 billion more overseas bonds than they sold last week.

“Japanese investors are beginning to get an appetite for foreign investment, which is weighing on the yen,” said David Forrester, a strategist in Singapore at Barclays Capital, a unit of the U.K.’s third-biggest bank. “They will continue to increase their exporting of capital, and we expect the yen to be one of the worst performers in the next six months.”

The krona rose from a six-week low against the euro as Latvia’s central bank said it will maintain its currency peg, easing concern the Baltic nation may devalue the lats and hurt Swedish banks with loans to the country.

Euro Versus Krona

Sweden’s krona strengthened 0.7 percent to 10.8332 versus the euro. It earlier touched 10.9842, the weakest level since April 23.

Currency traders expect the lats to drop within a year to half its value against the euro as the Baltic nation struggles to cope with the effects of the global financial crisis, according to Bank of America-Merrill Lynch.

Forward contracts price the lats 53 percent weaker than its current spot rate of 0.7073 versus the euro, Benoit Anne, a London-based strategist at the firm, said today. Forward contracts are agreements in which assets are bought and sold at specified prices for future delivery.

The dollar strengthened against the yen after Fitch Ratings reiterated its confidence in the top credit grades for the U.S. and the U.K., citing the countries’ fiscal strength.

‘The Right Thing’

“Our confidence in their ability and track record to do the right thing” makes the U.S. and the U.K. AAA-rated borrowers, David Riley, head of sovereign ratings at Fitch, said at a conference in Sydney today.

The dollar completed the biggest weekly decline in two months versus the euro on May 22 after Pacific Investment Management Co.’s Bill Gross said the previous day that the U.S. will “eventually” lose its top credit rating. Standard & Poor’s that day lowered the outlook on Britain’s AAA grade to “negative,” citing the government’s deteriorating finances.

The pound tumbled against the dollar amid speculation Prime Minister Gordon Brown was poised to resign. A British government spokesman described the rumor as “nonsense.”

Brown’s government has been rattled by three weeks of disclosures by the Daily Telegraph of personal spending by members of the parliament at public expense. The ruling Labour Party may finish third behind the conservatives and Liberal Democrats in U.K. elections today, a poll by ICM Ltd. showed.

The pound dropped 0.9 percent to $1.6169 after earlier falling to $1.6090, the lowest since May 29. It depreciated 1 percent to 87.65 pence per euro.

The Bank of England kept its main interest rate at 0.5 percent today and said it will refrain from increasing gilt purchases beyond the 125 billion pounds ($205 billion) already announced amid signs of an economic recovery. A Halifax report today showed home values unexpectedly rose 2.6 percent in May, the most since 2002.

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net

Last Updated: June 4, 2009 16:36 EDT