Yen Holds Gains Versus Most Peers as Greek Debt Concern Spurs Stock Losses

The yen held gains from yesterday versus most of its major counterparts as declines in Asian stocks and concern about Greece’s ability to complete a debt swap supported demand for the currency as a refuge.

Australia’s dollar touched a six-week low after a report showed the nation’s economy expanded by less than economists had forecast. The euro rallied against the dollar amid speculation options traders bought the 17-nation currency to prevent automatic trades from triggering after recent declines. South Korea’s won weakened for a third day as Citigroup Inc. said global funds pulling money from local stocks may trigger a further drop in the Asian currency.

“The market is in a risk-off environment, so the yen is more likely to be bought,” said Satoshi Okagawa, a senior global-markets analyst in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-largest banking group by market value. “It’s quite possible that the yen will strengthen beyond 80 per dollar.”

The Japanese currency fetched 106.17 per euro as of 6:41 a.m. in London from 106.07 in New York yesterday, when it climbed 1.6 percent, the sharpest advance since Nov. 9. The yen rose 0.2 percent to 80.77 per dollar. The euro gained 0.3 percent to $1.3148.

The MSCI Asia Pacific Index (MXAP) of shares slid 0.8 percent today, set for a third-straight decline. The Standard & Poor’s 500 Index (SPX) lost 1.5 percent and the MSCI World Index tumbled 2.1 percent yesterday.

The Chicago Board Options Exchange Volatility Index, a measure of market volatility known as Wall Street’s fear gauge, was at 20.87 yesterday, the highest close since Feb. 15.

Greek Talks

The Greek government, which set a 75 percent participation rate as a threshold for proceeding with its debt swap, said yesterday it will use collective action clauses to compel holders of Greek-law bonds to accept the transaction if it receives sufficient consents from investors.

The goal of the exchange, which runs through tomorrow, is to reduce by 53.5 percent the total of privately held Greek debt, helping avert an uncontrolled default that could roil markets and fuel contagion.

“We’ve got concerns that the hedge-fund holders of Greek private debt may create a bit of an issue tomorrow night and that may force Greece to technical default,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “Euro- dollar goes back to $1.26” by the middle of April, he predicted.

The ECB will keep its benchmark interest rate at a record low 1 percent tomorrow, according to the median estimate of economists in a Bloomberg News survey.

‘Knock-Out’ Options

The euro rebounded after sinking to as low as $1.3111 today.

“There’s talk of barrier options with a $1.3100 knock-out strike,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “Holders of these options appear to be buying the euro to protect them.”

A knockout is a barrier that renders the option worthless should it be triggered, and traders use it to reduce the premium paid for the option.

The euro has weakened 3 percent in the past six months, while the dollar has strengthened 4.4 percent, according to Bloomberg Correlation-Weighted Indexes that track 10 developed- market currencies. The yen dropped 2.3 percent.

Australia’s gross domestic product rose 0.4 percent in the fourth quarter from the previous three months, the Bureau of Statistics said today. The median of estimate from economists in a Bloomberg News survey was for an 0.8 percent gain.

Australia’s Growth

“I don’t see an immediate rebound in the Aussie dollar,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “The GDP report will keep rate- cut hopes alive and certainly adds to the overall tone this week of global growth concerns.”

The Australian dollar touched $1.0509, the lowest since Jan. 25, before trading at $1.0563 from $1.0553 yesterday.

South Korea’s won may weaken about 2 percent over the next “couple of weeks,” according to Citigroup.

The won fell 0.2 percent to 1,124.80 per dollar today, according to data compiled by Bloomberg. Overseas investors sold $254 million more Korean stocks than they bought this week through yesterday, exchange data show.

“The won could easily retrace to 1,150 over the next couple of weeks if risk-off gathers pace,” Patrick Perret- Green, head of foreign-exchange at Citigroup in Singapore, said in a telephone interview today. “The biggest question is what will happen to equities. A lot of inflows came into Asia in January and the first half of February and investors are now actually losing money.”

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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