July 8 (Bloomberg) -- The yen rose against the dollar and euro on speculation widening mortgage-industry losses will prompt investors to pare holdings of higher-yielding assets funded with the Japanese currency.

The yen gained most versus the Norwegian krone and the South African rand as stocks fell in Europe and Asia after Lehman Brothers Holdings Inc. said yesterday Fannie Mae and Freddie Mac, the two largest U.S. mortgage financers, may have to raise a combined $75 billion in capital. The yuan stayed higher after the Group of Eight nations signaled they are seeking gains in the currencies with trade surpluses, without singling out China.

``Falling stock markets, which are a sign of rising risk aversion, are supporting low-yielding currencies like the yen,'' said Marcus Hettinger, a currency strategist in Zurich at Credit Suisse Group, Switzerland's second-biggest bank. There's ``concern over more writedowns following the news about Fannie Mae and Freddie Mac.''

The yen climbed to 167.66 per euro as of 7 a.m. in New York, from 168.55 yesterday. It advanced to 106.84 per dollar from 107.18. The dollar rose to $1.5693, from $1.5726. The yen will rise to 105 per dollar and to 167 per euro in the coming month, Hettinger forecast.

The Japanese currency advanced versus the krone and the rand as a drop in commodity prices reduced the appeal of currencies from countries that export raw materials. The Reuters/Jefferies CRB Index of commodities futures fell 2.8 percent to 459.04, the biggest drop since March 19.

Against the krone, the yen advanced to 20.91, from 21.09 yesterday. It climbed to 13.73 per rand, from 13.82.

Stock Declines

Stocks fell after analysts at Lehman Brothers Holdings Inc. said yesterday a change in accounting rules may force Fannie Mae and Freddie Mac to raise $46 billion and $29 billion, respectively. The MSCI World Index lost 0.7 percent to 1354.88, extending its drop from an October record to almost 20 percent. Futures on the Standard & Poor's 500 Index fell 0.5 percent, signaling the benchmark index may enter a bear market today.

A slump in stocks this year has prompted investors to reduce carry trades, in which they get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the borrowing and lending rate. Japan's benchmark rate of 0.5 percent compares with 5.75 percent in Norway and 12.25 percent in Brazil.

G-8 on Yuan

The Chinese yuan was last quoted at 6.8511 per dollar, from 6.8690 yesterday, on course for its biggest gain in a month.

``In some emerging economies with large and growing current account surpluses, it is crucial that their effective exchange rates move so that necessary adjustment will occur,'' the G-8 said in a statement during a summit in Hokkaido, Japan. Central bankers aren't attending the meeting and the statement didn't make further mention of currency markets.

China must rebalance growth toward services and domestic consumption and away from industry and investment to reduce a current-account surplus which rose to 11.3 percent of gross domestic product in 2007, the World Bank said on June 19.

``The communiqué is pointed at China as they are the easiest target,'' Russell Jones, global head of foreign-exchange and fixed-income research in London at RBC Capital Markets, said in a Bloomberg Television interview. ``Our sense is that the dollar is grinding out of the bottom against the major currencies. It may move lower against the Chinese currency but that's probably a good thing.''

Won Gains

The South Korean won rose for a second day against the dollar, to 1,026, the strongest since June 20, on speculation the government intervened to strengthen the currency. It traded at 1,032.95 later.

The government pledged yesterday to use foreign reserves if necessary to support the won after its 11 percent slide in the past year. President Lee Myung Bak also fired Vice Finance Minister Choi Joong Kyung, in charge of currency policy.

``The intervention could be $1 billion or more,'' said Jung Chan Ho, a currency dealer at Shinhan Bank in Seoul. Central banks intervene in currency markets by buying and selling foreign exchange.

The dollar rose against the euro before speeches by Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson.

Bernanke speaks on financial regulation and stability at a forum in Arlington, Virginia today. He said on June 3 that he's ``attentive'' to the effect of the dollar's decline on inflation. Paulson and Bernanke are scheduled to testify before Congress on July 10.

`Degree of Comfort'

``The market is very concerned about the weakness of the U.S. economy and want the U.S. to alleviate that,'' Jeremy Stretch, a senior currency strategist in London at Rabobank International, the third-largest Dutch bank, said in a Bloomberg Television interview. ``The market will be looking for some degree of comfort from Bernanke and Paulson that the economy is going to show some signs of recovery. That might provide some support for the dollar.''

Gains in the U.S. currency may be limited before a National Association of Realtors housing report, due at 10 a.m. in Washington. Pending home resales probably fell 3 percent in May, the biggest decline since November, according to a Bloomberg News survey of economists.

Citigroup Inc., JPMorgan Chase & Co. and Merrill Lynch & Co. report quarterly earnings next week. The world's biggest banks and securities firms have racked up almost $400 billion in writedowns and credit losses since the collapse of the U.S. subprime mortgage market last year, according to Bloomberg data.

`Much Bad News'

``There is likely to be much bad news coming in from the U.S. earning reports,'' said Joseph Kraft, head of capital markets in Tokyo at Dresdner Kleinwort, an investment bank owned by Germany's Allianz SE. ``I expect this month to become dollar- selling, stock-selling and bond-buying markets.''

The dollar may fall to $1.5850 per euro this month, he said.

The U.S. currency weakened yesterday as the Standard & Poor's 500 Index dropped 0.8 percent, extending its plunge from an October record to more than 20 percent. Yields on two-year Treasury notes touched the lowest in a month.

``The dollar is a sell,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``When you look at the state of the U.S. economy, the conclusion is that the dollar is a weak currency.''

The dollar may decline to $1.5745 per euro and 106.60 yen today, Soma forecast.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net

Last Updated: July 8, 2008 07:26 EDT