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Yen Strengthens for Fourth Day as Europe Debt Concerns Spur Safety Demand

The yen rose for a fourth day against the euro and the dollar as concern Europe’s debt crisis will damp economic growth spurred demand for safer assets.

The euro was little changed against the dollar even as Italian bonds rallied after the nation sold bills at lower rates than the previous sale. The yen also gained after a U.S. Treasury report criticized the nation for intervening in the currency market and as economic reports signaled slowing economic growth last month. The New Zealand and Australian dollars rose as stocks and commodities advanced.

“There’s no appetite to assume any risk right now,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “The Treasury report had a pretty negative impact on dollar-yen and that was compounded by the fact that Japanese data itself was negative overnight.”

The yen rose 0.4 percent to 101.42 per euro at 8:36 a.m. in New York extending this year’s gain to 7.1 percent. Japan’s currency climbed 0.4 percent to 77.58 per dollar after reaching 77.57, the strongest level since Dec. 8. The euro was little changed at $1.3072, having fallen 2.3 percent in 2011.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, fell 0.2 percent to 79.715.

Futures on the Standard & Poor’s 500 Index rose 0.3 percent and the MSCI World Index (MXWO) of stocks rose 0.2 percent.

Euro Declines

The euro has weakened against all but two of its 16 most- traded peers this month. The 17-nation currency has declined 2.8 percent versus the dollar, and lost 2.7 percent against the yen.

South Africa’s rand has declined 18.3 percent against the dollar in 2011, the most of the U.S. currency’s major peers, according to Bloomberg data, followed by Mexico’s peso with an 11.7 percent loss. The yen has advanced 4.5 percent for the largest gain against the greenback.

Italy sold 9 billion euros ($11.8 billion) of 179-day bills at a rate of 3.251 percent, down from 6.504 percent at the previous auction of similar-maturity debt on Nov. 25. The Treasury also sold 1.7 billion euros of zero-coupon bonds due in September 2013 at a yield of 4.85 percent, versus 7.81 percent on Nov. 25.

The nation will auction as much as 8.5 billion euros of debt due between 2014 and 2022 tomorrow.

Italian 10-year bond yields dropped as much as 25 basis points to 6.75 percent, after rising to 7 percent yesterday, the level that spurred Greece, Ireland and Portugal to seek bailouts.

Italy’s Debt

“You can’t be optimistic about the Italian debt sales and I don’t expect very good results,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “The euro continues to face downward pressure.”

Italian business confidence dropped to 93.7 this month from 94.4 in November, according to economists surveyed by Bloomberg News before tomorrow’s report. That would be the least since January 2010.

Consumers in the euro area’s third-biggest economy spent 48 euros less per person this holiday season than the average of the past five years, Rome-based consumer group Codacons said in a statement on its website.

“The European economy risks a recession,” Ueda Harlow’s Yamauchi said. “Austerity measures will certainly hurt.”

Japan’s Economy

The yen also rose after reports showed industrial production and retail sales dropped more than forecast in November.

Industrial output decreased 2.6 percent in November from the previous month, the trade ministry said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for output to fall 0.8 percent.

Retail sales fell 2.3 percent last month from the previous year. Economists estimated the measure would be unchanged, according to a separate Bloomberg news survey.

The Treasury Department, in a semi-annual report to Congress on the currency policies of major trading partners, criticized Japan, which unilaterally sold the yen twice in the foreign-exchange market after Group of Seven economies jointly intervened after the March earthquake. The operations in August and October took place when market conditions were orderly and global economic developments were affecting other major currencies as well, the report said.

“The United States did not support these interventions,” the Treasury said, adding that the impact of the unilateral yen sales was temporary. “Rather than reacting to domestic ‘strong yen’ concerns by intervening to try to influence the exchange rate, Japan should take fundamental and thoroughgoing steps to increase the dynamism of the domestic economy.”

The report also declined to brand China a manipulator of its exchange rate, while calling the yuan undervalued and vowing to press for further appreciation of the currency. Trading in the currency is limited to a band set daily by the People’s Bank of China. It’s allowed to move 0.5 percent on either side of that rate.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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