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Euro Rises to Two-Week High as Spain Sells Debt; Aussie Weakens

The euro strengthened to a two-week high against the dollar and the yen as Spain raised more than its maximum target at a debt sale, boosting optimism the region’s sovereign-debt crisis is being contained.

The Dollar Index declined for a third day after U.S. inflation was little changed in December, giving the Federal Reserve more room to keep interest rates at virtually zero. The common currency advanced versus the yen and dollar as Greece held a second day of talks with private creditors in a bid to reach an accord to lower its debt levels. Australia’s dollar tumbled after payrolls unexpectedly shrank.

“The euro is getting a little bit of a boost from these bond auctions,” said John Doyle, director of markets in Washington at currency-trading firm Tempus Consulting Inc. “We’re still seeing generally positive U.S. data while Europe continues to struggle and is likely headed for a recession, but the euro has taken something like a breather from the massive fall it had in December.”

The euro rose 0.8 percent to $1.2968 at 5 p.m. in New York after climbing earlier to $1.2971, the strongest level since Jan. 4. The 17-nation currency appreciated 1.2 percent to 99.99 yen and touched 100.06 yen, the strongest since Jan. 4. The dollar rose 0.4 percent to 77.11 yen.

Europe’s shared currency has gained 2.4 percent in the past three days against the dollar as signs the debt crisis is stabilizing spurred demand for the region’s assets.

U.S. Policy Makers

The dollar weakened against most of its major peers as the outlook for interest rates spurred investors to seek higher-yielding assets. The central bank’s rate-setting committee meets Jan. 24-25. It has said it will keep the benchmark rate at a record low through at least mid-2013.

The U.S. consumer price index was little changed for a second month, Labor Department data showed today in Washington. That compared with a median forecast of a 0.1 percent gain in a Bloomberg News survey of economists. Excluding volatile food and fuel costs, the so-called core rose 0.1 percent as projected.

Other reports showed fewer Americans than forecast filed applications for jobless benefits last week and U.S. housing starts dropped 4.1 percent to a 657,000 annual rate last month.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, declined 0.5 percent to 80.071 and touched 80.046, the lowest level since Jan. 5.

Krona, Krone

Higher-yielding currencies gained after the stronger-than-forecast jobs data spurred an advance in stocks. The Standard & Poor’s 500 Index added 0.4 percent.

Sweden’s krona was the biggest winner among major currencies against the dollar, appreciating 1.4 percent to 6.7496. Norway’s krone strengthened 1 percent to 5.9054 to the greenback.

“The market has a sort of bullish momentum,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York. “If we look at some of the key outperformers today, the Norwegian krone and Swedish krona, they’re still performing pretty well.”

Spain sold 6.61 billion euros ($8.6 billion) of debt due in 2016, 2019 and 2022, exceeding the maximum target of 4.5 billion euros set for the auctions. Investors bid for 3.2 times the amount of 2016 notes allotted, versus 1.7 times last week. Demand for the 2022 bond was 2.2 times the amount sold, from 1.5 in November.

French borrowing costs declined as the nation sold 7.97 billion euros of medium and long-term securities.

Greek Talks

The euro also advanced as Greek Prime Minister Lucas Papademos races to complete an accord to lower his nation’s debt, key to a second financing package for the country.

Progress was made in the debt swap talks, Greek Finance Minister Evangelos Venizelos said today. The discussions with officials from the Institute of International Finance, which represents bondholders, will continue tomorrow, he told reporters in Athens after the meeting.

“The euro’s rebound is very fragile, and we could well see it starting to run out of steam very quickly,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “There are many risk factors, including the Greek negotiations.”

The common currency declined 3.4 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen, the top performer, gained 7.4 percent, and the dollar rose 6.6 percent.

Aussie Falls

Australia’s dollar weakened against all its 16 major counterparts except the yen and the New Zealand dollar after the statistics bureau said the number of workers dropped by 29,300 in December. Economists had projected an increase of 10,000. The Aussie declined 0.2 percent to $1.0419.

New Zealand’s dollar, nicknamed the kiwi, slid after the nation’s consumer prices unexpectedly fell in the fourth quarter. It weakened 0.2 percent to 80.29 U.S. cents.

The franc strengthened to within 0.1 percent of a four-month high against the euro as investors bet the Swiss National Bank won’t raise the currency floor imposed by former President Phillip Hildebrand.

The Swiss currency approached its strongest level since September, the same month the SNB capped the currency’s strength at 1.20 per euro. Hildebrand, a former hedge-fund manager, announced his resignation on Jan. 9.

The currency was little changed at 1.2088 per euro after earlier reaching 1.2069. It reached 1.2063 per euro on Jan. 13, the strongest since Sept. 20. The franc strengthened on Aug. 9 to a record 1.0075 per euro.

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