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Krone Appreciates Versus Euro on Safety Bid Amid Debt Concern

The Norwegian krone strengthened versus the euro as investors sought the safest assets amid concern that the European debt crisis may worsen.

The krone advanced versus against a majority of 16 major peers tracked by Bloomberg as the European Central Bank was said to buy Spanish and Italian government bonds in an attempt to stop the crisis from spreading. The Swiss franc and Japanese yen, traditionally havens from financial turmoil, also advanced after Standard & Poor’s cut the U.S. credit rating one level to AA+ from AAA on Aug. 5. The Swedish krona also appreciated against the 17-member common currency.

The krone is “a good destination for investors to park some of their money as a safe haven,” said Carl Hammer, chief foreign-exchange strategist at Stockholm-based SEB AG. Today’s gains in the krone and krona are “a sign of strength and of defensive qualities for both currencies,” he said.

Norway’s krone rose 0.4 percent against the euro to 7.7887 and fell 0.5 percent to 5.5013 per dollar as of 3:30 p.m. in London. Sweden’s krona gained 0.2 percent to 9.2346 per euro.

“I can see that foreign banks are keen on the story of the safe haven,” said Ole Haakon Eek-Nielsen, an analyst at Nordea Bank AB in Oslo. “It’s all the fundamentals: low unemployment, high real-estate prices, high growth, high growth estimates, high public budget surpluses, and the oil fund is huge, so if we face any problem, we can easily fend them off.”

Norges Bank Decision

Norway’s central bank announces its interest rate decision on August 10. The bank will raise its overnight deposit rate by 25 basis points to 2.5 percent, according to the median estimate of 14 economists surveyed by Bloomberg News.

Policy makers in June left the rate unchanged at 2.25 percent and signaled they would raise this month. Still, Norges Bank Governor Oeystein Olsen said in a June interview that the bank is ready to rethink its rate plans should the debt crisis move to bigger European countries.

“The interest rates decision is very important,” said Nordea’s Eek-Nielsen. “If they hike, that might get the euro- krone lower.”

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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