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Euro Climbs as IMF Studies $500 Billion Boost; Dollar Weakens

Dollar, Yen Hold Losses Versus Euro
A dealer sends a buy signal during afternoon trading at a brokerage in Tokyo, Japan, on Aug. 10, 2011. Photographer: Kimimasa Mayama/Bloomberg

The euro gained for a second day versus the dollar and the yen as the International Monetary Fund proposed raising its lending capacity by as much as $500 billion to protect the global economy amid Europe’s debt turmoil.

The 17-nation currency rallied against most of its major peers as Greek officials resumed negotiations with bondholders. The dollar fell against the euro on reduced demand for a refuge as U.S. data showed a rebound in industrial production. Brazil’s real climbed as risk appetite improved, while the pound weakened against the euro as Britain’s unemployment rose.

“The talk that the IMF is looking to shore up its lending capacity, the talks resuming between Greece and its creditor banks, all those things are having a little bit of a calming influence on the euro today,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “The overwhelming feeling is that the euro is vulnerable to the downside.”

The euro appreciated 1 percent to $1.2863 at 5 p.m. New York time, after rising 0.5 percent yesterday. Europe’s shared currency climbed 1 percent to 98.83 yen. It fell on Jan. 16 to 97.04 yen, the weakest level since December 2000. The dollar was little changed today at 76.82 yen.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.8 percent to 80.518, the lowest level since Jan. 5.

Output at U.S. factories, mines and utilities rose 0.4 percent last month after a revised 0.3 percent decline in November, Federal Reserve data showed today in Washington. A Bloomberg News survey forecast a 0.5 percent rise for December.

Homebuilder Confidence

The euro remained stronger versus the dollar as a report showed confidence among U.S. homebuilders rose this month to the highest level since June 2007. The National Association of Home Builders/Wells Fargo sentiment gauge increased to 25 this month, the Washington-based group said today. Readings lower than 50 mean more respondents still said conditions were poor.

Sterling dropped for a second day against the euro and Swiss franc as data showed the U.K.’s unemployment rate rose to 8.4 percent in the quarter through November, the most since January 1996.

The pound depreciated 0.3 percent to 83.32 pence per euro and declined 0.4 percent to 1.4504 Swiss francs. Sterling rose 0.7 percent to $1.5438.

IMF Boost

The euro rallied versus the dollar and yen as an IMF spokesman said in a statement that the Washington-based lender wants to increase its resources after identifying a potential need for $1 trillion in coming years. The IMF is studying options and will not comment further until it has consulted its members, the fund said.

Greek Finance Minister Evangelos Venizelos said talks on a debt-swap plan for his country are at a “very fine point.” He spoke to lawmakers in Athens today in comments televised live on state-run Vouli TV.

Greece resumed negotiations today with the Institute of International Finance, which represents private creditors. There was a “lengthy meeting,” and talks will continue tomorrow, IIF spokesman Frank Vogl said in an e-mailed statement.

The Washington-based IIF broke off negotiations last week after failing to agree with the government about how much money investors will lose by swapping their bonds. The government may forge a deal by the end of the week, a finance-ministry official told reporters in the Greek capital today. He declined to be identified.

U.S. Financial Assets

Global demand for U.S. financial assets rose more than forecast in November, boosted by investors seeking shelter from Europe’s debt crisis. Net buying of long-term equities, notes and bonds totaled $59.8 billion, versus net purchases of $8.3 billion in October, the Treasury said in Washington. Including short-term securities, foreigners bought a net $48.6 billion compared with net selling of $39.6 billion the previous month.

The euro “will come under increasing pressure through the course of the year,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. He spoke in an interview on Bloomberg Radio’s “Bloomberg - The First Word” with Ken Prewitt.

The euro weakened 3.7 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes. The yen rose 8.6 percent in the best performance in the gauge of 10 developed-nation currencies. The dollar gained 6.7 percent.

Futures traders last week increased bets to a record that the euro will decline against the dollar. The difference between wagers that the shared currency will fall versus those that it will rise -- so-called net shorts -- surged to 155,195 in the week ended Jan. 10, data from the Commodity Futures Trading Commission showed on Jan. 13.

‘Classic Sign’

“Compared to one week or two weeks ago, the odds of a Greek messy or coercive default are greater, yet the euro” has gained for two days, said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “It’s a classic sign of how short the market is euro. The fact that it can’t sell off on bad news tells you that there’s a bit of fatigue setting in with euro bears,” he said. A short position is a bet a currency will weaken.

Higher-yielding currencies rose as stocks advanced, boosting demand for risk. Brazil’s real, Norway’s krone and Sweden’s krona gained the most against the dollar among major currencies. The krona appreciated 1.2 percent to 6.8437 to the greenback. The Norwegian currency climbed 1.2 percent to 5.9675 per dollar, and the real strengthened 1.1 percent to 1.7671.

The Standard & Poor’s 500 Index climbed 1.1 percent.

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