Euro Holds Gain on Speculation ECB Will Act to Counter Crisis

The euro held yesterday’s biggest gain in six weeks against the dollar on speculation European Central Bank policy makers will today announce steps to stem the region’s debt crisis.

The shared currency maintained its advance versus the yen as the head of Europe’s rescue fund said it plans sell as much as 8 billion euros ($10.5 billion) in debt to finance aid to Ireland. The dollar traded near a two-month high against the yen after the Federal Reserve said yesterday the economy gained strength across much of the U.S. as hiring improved.

“The markets are expecting the ECB to do something,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “The euro seems to be supported, but it needs some concrete action coming from the ECB and other officials to say the right things.”

The euro traded at $1.3127 as of 8:41 a.m. in Tokyo from $1.3139 in New York yesterday, when it climbed 1.2 percent, the most since Oct. 20. The common currency was at 110.49 yen from 110.58. The dollar bought 84.18 yen from 84.19 yen.

The ECB’s Governing Council will meet today amid expectations it will again delay its exit from emergency liquidity measures. Economists forecast policy makers will keep the benchmark interest rate at 1 percent.

‘Financial Stability’

“I don’t believe that financial stability in the euro zone could really be called into question,” Trichet told lawmakers this week. The ECB’s bond program is “ongoing” and “we will see what we decide.”

The European Financial Stability Facility may issue between 5 billion euros and 8 billion euros of bonds in January to fund aid to Ireland, Chief Executive Officer Klaus Regling said yesterday.

Speculation the debt crisis will spread to Portugal and Spain grew after European authorities approved an 85 billion-euro aid package for Ireland on Nov. 28 when it became the second euro-area nation after Greece to seek financial help.

The assistance followed a surge in bond spreads among Europe’s so-called peripheral nations that raised concerns the debt crisis will worsen across the currency region. The EFSF’s contribution to Ireland amounts to 17.7 billion euros, excluding bilateral loans from the U.K., Sweden and Denmark, according to a Nov. 28 statement issued in Brussels.

Spain’s 10-year government bonds rose yesterday, snapping an 11-day decline and pushing yields down 21 basis points to 5.29 percent on speculation the ECB may move to curb debt-crisis contagion. The drop was the biggest on a closing basis since May. Portuguese two-year debt also gained, sending the yield eight basis points lower to 4.74 percent.

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