Nov. 30 (Bloomberg) -- The dollar fell against higher- yielding currencies after the United Arab Emirates’ central bank said it “stands behind” the country’s lenders, easing concern that state-owned Dubai World would default on its debt.

The U.S. currency also snapped two days of gains against the euro after the Abu Dhabi-based central bank said lenders will be able to borrow using a special facility tied to their current accounts. The Australian and New Zealand dollars rallied as demand for high-yielding assets increased.

“The assurances, though not as strong as some people would have liked, imply risk appetite and the risk trade have come back,” said Stuart Bennett, a London-based analyst at Calyon, the investment-banking arm of Credit Agricole SA. “The pressure on the dollar was already there before the announcement. If this is a Dubai blip, people are going to be worried that they’ll miss the boat.”

The dollar fell to $1.5033 per euro as of 8:36 a.m. in London, from $1.4988 in New York last week. Australia’s dollar jumped to 91.56 U.S. cents, from 90.63 cents, and strengthened to 78.86 yen, from 78.43. New Zealand’s dollar advanced to 71.65 U.S. cents, from 71.11 cents, and gained to 61.67 yen, from 61.52 yen.

The yen was at 129.51 per euro, from 129.67 at the end of last week. It traded at 86.07 per dollar, from 86.53. It rose to a 14-year high of 84.83 on Nov. 27. The dollar may weaken to $1.55 per euro by year-end, Bennett said.

Stocks Advance

The MSCI World Index of stocks rose 0.6 percent after the U.A.E central bank said yesterday lenders will be able to borrow money from the regulator for half a percentage point above the three-month local benchmark interest rate. U.S. stock-index futures advanced.

The U.S. currency dropped 2.7 percent last week against the yen, the biggest weekly decline since the period to Aug. 14, after Dubai World sought to delay payments on debt.

Losses today by the yen were tempered by renewed concern about Dubai World’s finances. Dubai’s property developer Nakheel PJSC asked Nasdaq Dubai to suspend the trading on all its Islamic sukuk bonds until it is in a position to provide further information, according to a statement to the Dubai bourse.

“Dubai’s impact is spreading with the report on Nakheel,” said Takeshi Tokita, vice president of foreign-exchange sales at Mizuho Corporate Bank Ltd. in Tokyo. “That stoked concerns about the global market, causing yen-crosses to be sold.”

Work Closely

Japanese Finance Minister Hirohisa Fujii was quoted by the Mainichi newspaper as saying the government won’t act to weaken the yen.

The government should work closely with the Bank of Japan to deal with the strengthening yen, Mainichi reported Fujii as saying. He made the remarks last night to reporters after discussing the yen-dollar exchange rate with Prime Minister Yukio Hatoyama, the newspaper said.

Fujii denied today saying he has ruled out intervening in foreign-exchange markets.

“I never said that,” Fujii told reporters in Tokyo today when asked about remarks he made yesterday.

“The market is already convinced that the Japanese government won’t intervene at the current level,” said Kazutoshi Yasuda, general manager of the markets department in Tokyo at FX Prime Corp., a foreign-exchange unit of Japanese trading house Itochu Corp.

Bank of Japan Governor Masaaki Shirakawa said today it’s up to the government to decide whether to intervene in the foreign- exchange market.

Rapid Appreciation

“The bank pays due attention to the effects of the recent rapid appreciation of the yen on business sentiment of the firms that are on the road to recovery, as well as to the effects of international financial developments,” Shirakawa said at a business meeting in Nagoya, central Japan. “It would be important, above all, for a central bank to examine the economy without prejudgment.”

Japan hasn’t sold its currency since March 16, 2004, when it was at about 109 per dollar. The BOJ sold 14.8 trillion yen ($172 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998 as the rate fell as low as 147.66.

Contracts granting the right to buy the yen versus the dollar rose last week to a 2.1 percentage-point premium relative to options for selling Japan’s currency, according to Bloomberg data. The odds of the yen strengthening past 84.83 per dollar to 84.5 by the end of March rose to 80 percent, options data compiled by Bloomberg show.

‘Spread Fears’

Dubai World, which is struggling with $59 billion of debt and other liabilities, said Nov. 25 it would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The news led to a slump in global financial markets and raised prospects of new loan losses for U.A.E. and foreign banks.

“Dubai World’s news spread fears over potential risks in emerging markets,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of France’s third-largest bank. “Underlying concerns here may encourage investors to repatriate funds from emerging and commodity markets.”

The Swiss franc gained as much as 0.1 percent against the euro to trade at 1.5052 amid investor optimism that Switzerland’s economy will outperform its peers as the global recovery takes shape.

The number of wagers on a gain in the franc against the dollar exceeded bets on a decline by 10 times this month, data from the Commodity Futures Trading Commission showed. That’s the widest gap since the fourth-quarter of 2004, when the currency was rallying 9.3 percent versus the greenback. Underscoring their optimism, traders drove the franc to parity with the dollar last week for the first time since April 2008.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

Last Updated: November 30, 2009 04:32 EST