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Euro Rallies as Greek Debt-Swap Participation at 58%

The euro rallied from a two-week low against the dollar as investors with 58 percent of the Greek bonds eligible have indicated they’ll participate in the so-called private-sector involvement of the nation’s bailout.

The dollar rose against the yen after a report that the Federal Reserve is considering sterilized bond purchases. Brazil’s real tumbled against all of its most-traded counterparts as the government prepared measures to control capital inflows and stem currency appreciation. New Zealand’s dollar pared gains after the central bank kept interest rates unchanged and said the strong currency may reduce need for increases.

“You can see people positioning for PSI to happen,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York. “People are not willing to bet on a very bad event. The PSI debate was just a huge excuse for profit-taking. If we do not reach the threshold, the dollar will be bid significantly across the board.”

The euro gained 0.3 percent to $1.3149 at 5 p.m. New York time. It touched $1.3096, the weakest level since Feb. 16. The 17-nation currency rose 0.5 percent to 106.63 yen.

Yen Weakness

The yen extended losses against the dollar to 0.3 percent to trade at 81.09 after the Wall Street Journal reported the U.S. central bank was considering a monetary program that would also subdue concern about future inflation. The program could see the Fed borrow an equivalent amount of money that it used to purchase the bonds, the report said.

“The dollar-yen has moved higher on the back of the Fed article and the pair typically trades as a function of the U.S. Treasury curve and short-term yields rose slightly,” said SocGen’s Galy.

Investors with holding at least 120 billion euros ($158 billion) of the Greek bonds eligible for the nation’s debt swap have agreed to sign on, according to data compiled by Bloomberg from company reports and government statements. The Greek government has set a 75 percent participation rate as a threshold for proceeding with the transaction.

“Investors are still worried about the Greek PSI, the potential of the CDS being triggered, but at the end of the day there’s not much to be overly concerned about,” David Woo, head of global rates and currencies research at Bank of America Corp. in New York, said in an interview on Bloomberg Television’s “Surveillance Midday.”

Greek Debt

The nation has said it will use collective action clauses to force holders of Greek-law bonds to accept the swap if it receives sufficient consent from investors.

“We’re telling people to be short euro on some crosses versus commodity currencies, but be neutral against the dollar,” said Greg Anderson, a senior currency strategist at Citigroup Inc. in New York. A short position is a bet that an asset will decline in value. “Risk appetite remains relatively buoyant compared to yesterday. Our economists believe the CACs will be triggered.”

New Zealand’s currency was 0.5 percent higher at 81.65 U.S. cents after rallying as much as 1 percent. The so-called kiwi pared gains after Reserve Bank Governor Alan Bollard kept interest rates at 4.25 percent and said inflation expectations have fallen due in part to a stronger domestic dollar.

Real falls

Brazil’s real weakened 0.4 percent to 1.7661 per dollar. It touched 1.7737, the weakest since Jan. 18.

The Brazilian government may reduce the maturity of short-term trade loans backed by export contracts, known as ACC, from 360 days currently, according to the Sao Paulo-based newspaper Valor Economico. It may also impose a tax on loans from companies outside Brazil to subsidiaries in the country, Valor said.

The implied volatility of three-month options on G-7 currencies as tracked by the JPMorgan G7 Volatility Index fell to 10.37 percent, compared to the gauge’s average since August of 12.29, as options traders scaled back the risk of large exchange-rate swings. Lower volatility makes investments in currencies with higher benchmark rates more attractive because the risk in such trades is that market moves will erase profits.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.2 percent to 79.685 as companies added 216,000 jobs in February, and a revised 173,000 payrolls the previous month, according to ADP Employer Services. That compares to an estimated 215,000 additional jobs, according to a Bloomberg News survey and a previous reading of 170,000.

Norway’s krone rose 1 percent to 5.6523 per dollar as traders pared bets the central bank will cut interest rates. Norges Bank is now expected to reduce the benchmark by 14 basis points in the next 12 months, compared to a forecast 21 basis points at the beginning of the month, according to a Credit Suisse index based on swaps.

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