July 9 (Bloomberg) -- The yen fell to a record low against the euro as stocks in Asia and Europe climbed, luring Japanese investors to overseas assets.

The Japanese yen slid against the nine most-actively traded currencies as indexes of Australian and Hong Kong shares rose to all-time highs and a gauge of Thai equities was at its strongest in 10 years. National benchmarks of stocks gained in all 18 western European markets except Spain.

``Japanese households are increasingly buying foreign equities,'' said Hans Guenter Redeker, head of currency strategy at BNP Paribas SA in London. ``Strong stock market performances, also locally in Asia, are putting the yen under pressure.''

Against the euro, the yen traded at 168.22 at 7:42 a.m. in New York after reaching 168.51, the weakest on record, from 168.05 late on July 6. The yen traded at 123.42 per dollar, from 123.34. It weakened to 106.30 against the Australian dollar, the lowest since October 1991.

The Morgan Stanley Capital International Asia-Pacific Index added 1 percent to 157.86. Europe's Dow Jones Stoxx 600 Index gained 0.4 percent. Investors in Japan bought a net 103.3 billion yen ($840 million) of foreign stocks in the week ended June 30, the Ministry of Finance said in Tokyo on July 5.

Japan's 0.5 percent key interest rate, the lowest among industrialized nations, has prompted local investors to seek higher returns overseas. In comparison, the European Central Bank's benchmark rate is 4 percent, Australia's is 6.25 percent, and South Africa's is 9.5 percent.

South African Bonds

The rand may gain 12 percent against the yen in six months after a three-fold increase in sales of South African bonds to Japanese investors seeking higher yields, said Okasan Securities Co., the leading underwriter of such issues.

South Africa's currency rose to 17.7093 yen today, the strongest since May 2006, before trading at 17.6953 yen.

The Canadian dollar gained to a 30-year high against its U.S. counterpart on speculation Canada's central bank will raise rates tomorrow a quarter-point to 4.5 percent. That follows the stronger-than-expected June jobs report on July 6. Canada's currency was at C$1.0459 to the U.S. dollar, from C$1.0494.

The yen pared some declines as Japan's machinery orders, a key indicator of corporate spending plans, rose a second month in May, and after Japan's Vice Finance Minister Hideto Fujii said currencies should reflect the outlook for economic growth.

``Currencies should reflect economic fundamentals and Japan's economy is solid,'' Fujii, the Finance Ministry's top- ranked official, told reporters in Tokyo today.

MOF's Fujii

``Fujii's comments helped the yen recover a bit,'' said Antje Praefcke, a currency strategist at Commerzbank AG in Frankfurt. ``This is the old mantra. With interest rates at 0.5 percent or even 1 percent, they can't do anything against it. The yen will remain under pressure.''

She expects the yen to fall to 170 per euro and to 125 against the dollar in the next few weeks.

The euro was supported by a report that showed German industrial production gained 1.9 percent in May, after a drop of 2.3 percent in April.

The figures ``confirm that the European economy is strong and that the ECB will raise interest rates further,'' said Marcus Hettinger. The euro may rise to $1.3670 this week, where sell orders are clustered, he said.

Gains in the euro were tempered by speculation European policy makers will this week voice concern that its appreciation will hinder growth by making the region's exports costlier.

Export Concern

Europe's finance ministers will meet in Brussels for two days from today. French President Nicolas Sarkozy, who is also attending the meeting, said last week that the euro's ``overvaluation'' is leaving manufacturers at a disadvantage against foreign competitors. The euro has risen 3.2 percent against the dollar and 7.2 percent versus the yen this year.

``There's an opportunity for people there to restate their concern over euro strength,'' said Adrian Foster, director of currency sales at Dresdner Kleinwort in Beijing. ``It's a euro- negative.''

The euro was little changed at $1.3629 in London, and Foster expects it to fall to $1.3540 this week.

The dollar may gain before a speech tomorrow by Federal Reserve Chairman Ben S. Bernanke that will probably highlight his concern that price gains haven't slowed enough.

Bernanke will speak on inflation at the National Bureau of Economic Research in Cambridge, Massachusetts at 1 p.m. tomorrow.

The Fed said a moderation in inflation hasn't been ``convincingly demonstrated'' at a meeting on June 28 where it left interest rates at 5.25 percent. The dollar has gained 0.5 percent against the yen since then.

``The dollar has room to gain against the yen,'' said Xinyi Lu, chief strategist of the international treasury division in Tokyo at Mizuho Corporate Bank Ltd. ``Bernanke is likely to say he's not as confident as he once was that inflation will ease. Rising long-term yields benefit the dollar,'' which may advance to 125 yen in two weeks, he said.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net

Last Updated: July 9, 2007 07:46 EDT