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Old 02-29-2012, 10:17 AM   #1

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Default Euro Approaches Three-Month High Before ECB Operation to Refinance Banks
The euro rose toward its strongest in almost three months on speculation the European Central Bank’s allotment of three-year loans to banks today will spur demand for the region’s assets.

The yen slid against all of its 16 major peers on prospects the ECB action will boost buying of higher-yielding assets. The dollar also weakened against most counterparts before Federal Reserve Chairman Ben S. Bernanke testifies to the House Financial Services Committee after saying Jan. 25 policy makers are keeping open the option to increase bond purchases to support growth. Australia’s currency rose to a three-week high after a report showed consumer spending climbed.

“The market has not been committed to putting on the yield trade, and I think if you get a good number, the euro will do well,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., referring to the ECB’s loan operation. “It would provide a stimulus to risk currencies and risk itself.”

The euro rose 0.2 percent $1.3481 at 12:42 p.m. in Tokyo from $1.3458 in New York yesterday. The common currency climbed as high as $1.3487 on Feb. 24, matching its strongest level since Dec. 2. It rose 0.2 percent to 108.46 yen. The dollar was little changed at 80.45 yen.

The Frankfurt-based ECB will probably grant euro-region banks 470 billion ($633 billion) euros this week in its longer- term refinancing operation, or LTRO, according a Bloomberg News survey. The bank lent a record 489 billion euros in its first such operation on Dec. 21.

Retail Sales, Confidence
Using the operations, banks can borrow from the ECB at around 1 percent and invest the proceeds in higher-yielding securities such as the 10-year Italian government bond, yielding 5.35 percent.

The euro has climbed 0.5 percent in the past week according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar has declined 1.4 percent and the yen has lost 1.8 percent, the worst performance.

Australia’s currency climbed against 14 of its 16 major peers after a report showed retail sales advanced by the most in four months as a surge in spending at cafes and restaurants outweighed a decline in household goods purchases.

Sales climbed 0.3 percent in January from a month earlier, when they fell 0.1 percent, the Bureau of Statistics said today. The so-called Aussie rose as high as $1.0823, the most since Feb. 9, before trading 0.5 percent higher at $1.0820.

‘Risk-on World’
The retail data “only adds to the attractiveness of the Aussie in a risk-on world,” said Todd Elmer, head of Group- of-10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore.

New Zealand’s dollar climbed after a survey by ANZ National Bank Ltd. showed business confidence rose to a five-month high in February, while a second gauge of sales and profits also advanced. The so-called kiwi gained 0.7 percent to 84.35 U.S. cents and advanced 0.8 percent to 67.94 yen.

The dollar weakened before Bernanke explains the Fed’s monetary policy and the outlook for the economy in his semi- annual testimony today.

The Fed chairman said last month that the central bank is considering buying more bonds after policy makers extended their pledge to keep the benchmark interest rate at “exceptionally low levels” at least through late 2014. The Fed has engaged in two rounds of asset purchases, totaling $2.3 trillion in so- called quantitative easing.

“We believe that the dollar will continue to be the best funding currency given the Fed will keep its low interest rate policy for the time being,” said Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo. “The market is closely watching whether Bernanke’s testimony will support the view.”
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