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Yen Gains as Goldman Probe, Greece Concern Spurs Safety Demand

The yen rose for a third day against the euro as concern that probes into Goldman Sachs Group Inc. will widen and Greece’s aid package may falter boosted demand for Japan’s currency as a refuge.

The yen strengthened versus all 16 of its main counterparts after U.K. Prime Minister Gordon Brown yesterday called for an investigation of Goldman Sachs following the U.S. Securities and Exchange Commission’s allegations of fraud. The euro fell to a one-week low against the dollar as International Monetary Fund and European Union officials prepared to lay down conditions on a bailout package for Greece. The pound slid the most in more than three weeks as polls indicated the U.K. election won’t produce a clear winner.

“It’s obviously a correction for the yen that’s been triggered by Goldman Sachs being accused of fraud,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It has prompted a sell-off in risk assets across the board and the yen strengthens on the back of that.”

The yen appreciated to 123.42 per euro as of 6:26 a.m. in New York, from 124.44 last week, after reaching 123.16, the strongest since March 26. Japan’s currency advanced to 91.92 per dollar, from 92.17. The euro fell to $1.3435, from $1.3503, after reaching $1.3421, the weakest since April 9. The Dollar Index climbed for the third day, rising 0.5 percent to 81.264.

Equities fell after the SEC said last week that Goldman Sachs in early 2007 created and sold a collateralized debt obligation linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle. The firm denies any wrongdoing.

‘Moral Bankruptcy’

Brown said he was “shocked” at the “moral bankruptcy” indicated in the suit. The German government “will ask the SEC for information,” said Ulrich Wilhelm, a spokesman for Chancellor Angela Merkel. “Then we will look at the records and consider possible legal steps.”

The euro fell for a third day against the dollar as concern Greece will activate the EU-led 45 billion-euro ($60 billion) emergency-loan package damped demand for the European currency.

Talks on Greece involving the European Commission, the IMF and the European Central Bank have been delayed until April 21 from today because of a volcanic ash cloud disrupting air travel. Initial discussions will be held by phone today, a commission spokesman said.

Greek ‘Rage’

Prime Minister George Papandreou’s decision to call for the talks prompted a reaction of “rage” among 48 percent of Greeks surveyed in a poll in the Eleftheros Typos newspaper yesterday. Nine of 10 people surveyed said they expected the IMF to insist on more belt-tightening. Labor unions have threatened new strikes over the prospect of more budget cuts.

The extra yield offered by Greek 10-year bonds over similar-maturity German bunds, Europe’s benchmark debt securities, widened to 32 basis points to 462 basis points, the most since October 1998. Greece needs to raise 11.6 billion euros by the end of May. A wider gap between the yields indicates perceptions of higher risk for Greece.

The euro slid 5.7 percent against the dollar in the first quarter amid concern Greece’s debt crisis could threaten the economic recovery across the region.

“The spread is as good as any indicator of the level of concern,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “We are moving slowly toward the point where the button is hit to call in the aid. All those things continue to weigh on the euro.”

Short Positions Rise

The yen move may have been exaggerated as investors trimmed bets that the yen will decline against the dollar, after futures traders increased wagers on a drop last week to the most since July 2007, Hardman said.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 55,746 on April 13, compared with net shorts of 42,305 a week earlier, figures from the Washington-based Commodity Futures Trading Commission showed on April 16.

“Speculative yen net-short positions have been built up in recent weeks,” Hardman said. “That creates scope for a greater short squeeze.”

The pound slid after a survey showed an increase in support for the Liberal Democrats, boosting concern the U.K. will elect a government too weak to tackle the country’s record budget deficit. The Liberal Democrats overtook the ruling Labour Party and Conservatives, according to a YouGov poll for today’s Sun newspaper.

Hung Parliament

The chances of the May 6 vote producing a so-called hung parliament are 78.9 percent, according to Royal Bank of Scotland Group Plc estimates based on opinion polls data.

The pound lost 1 percent to $1.5204, after earlier slipping 1.1 percent, the most since March 24. It depreciated by 0.6 percent to 88.34 pence per euro.

The Australian dollar’s push to parity with the U.S. dollar is in jeopardy as central bankers signal they may slow the pace of interest-rate increases and China moves closer to revaluing the yuan.

After rallying 28 percent the past 12 months, more than any other currency tracked by Bloomberg, Morgan Stanley predicts the Aussie may tumble 16 percent by year-end because higher borrowing costs will curb growth. Barclays Capital, which in December forecast a peak of $1 in 2010, now expects the Australian dollar to be the biggest loser from what it calls a “significant” yuan revaluation.

The currency is “fully priced,” said Scott Ainsbury, a New York-based money manager who helps invest about $9 billion at FX Concepts Inc., the world’s biggest foreign-exchange hedge fund. “It’s probably time to lighten up,” he said. The Aussie may weaken about 3 percent before rising by year-end.

Australia’s dollar declined 0.7 percent to 91.79 U.S. cents, and slipped 0.9 percent to 84.43 yen.

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