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Danish Currency Reserves Surge as Bank Defends Krone Peg

Jan. 3 (Bloomberg) -- Denmark’s foreign currency reserves rose more than estimated to the third-highest level on record as the central bank sold kroner to defend a peg to the euro.

Reserves jumped 14 billion kroner to 481.7 billion kroner ($84.5 billion) last month, the Copenhagen-based central bank said today in a statement. The median estimate of in a Bloomberg survey of three economists was for 477.7 billion kroner.

The central bank cut its benchmark interest rate twice last month to protect the krone’s peg to the euro as investors fled indebted euro-are economies and bought Danish assets. The bank said today it made a net purchase of foreign currency of 17.8 billion kroner in December to keep the peg, the biggest monthly amount since May 2010, according to Nordea Bank AB.

“Denmark’s krone is still strong compared with the euro,” Jan Stoerup Nielsen, a senior analyst at Nordea in Copenhagen, said in a note. “We therefore expect the central bank will cut rates one more time in the coming months to counter the pressure on the krone.”

Denmark, a European Union member, has opted out of joining the common currency and its central bank’s sole mandate is to keep the krone fixed against the euro within a 2.25 percent band of a central target of 7.46038.

The krone weakened to 7.4362 against the euro as of 4:22 p.m. in Copenhagen, compared with 7.4320 earlier in the day, according to prices available on the Bloomberg. The currency has traded at an average of 7.4448 over the past six months.

The bank’s rate cuts last month brought the benchmark lending rate to a record-low 0.7 percent. The bank doesn’t hold scheduled meetings and can change its rates at any time to defend the peg.

To contact the reporter on this story: Christian Wienberg at cwienberg@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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