Euro Declines to Three-Week Low Against Yen on Risk Aversion

Dec. 18 (Bloomberg) -- The euro fell to a three-week low against the yen as investors shunned riskier assets amid concern the region’s economic rebound will stall.

The yen rose for the first time in four days against the dollar as Asian stocks tumbled and Japanese exporters brought home earnings before the end of the year. The dollar headed for a third weekly advance against the euro before a report next week forecast to show German consumer confidence declined, adding to signs a recovery in the biggest economy of the euro- zone may be slow.

“Prospects for the euro-zone economy are growing murky, given sovereign debt woes and banking sector issues,” said Keiji Matsumoto, currency strategist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest banking group. “The euro may stretch its decline both against the dollar and the yen.”

The euro fell to 127.79 yen as of 9:44 a.m. in Tokyo from 129 yen yesterday in New York, after touching 127.54, the weakest since Nov. 27. The yen gained to 89.22 per dollar from 89.96. The euro was at $1.4343 from $1.4338.

Nuremberg-based GfK will say Dec. 22 its sentiment index, based on a survey of about 2,000 people, fell to 3.5 in January from 3.7 in the previous month, according to the median estimate of economists surveyed by Bloomberg.

Sovereign Concern

Standard & Poor’s this week cut Greece’s credit rating to BBB+ from A- and signaled it may lower the level further. Fitch Ratings downgraded Greece to BBB+ on Dec. 8, raising concern among investors that the worst global recession since World War II is still weighing on some economies.

S&P yesterday cut long-term credit ratings for Greek banks EFG Eurobank Ergasias and Alpha Bank AE by one level to BBB, and put those ratings on “creditwatch negative,” signaling S&P may reduce them further.

The Greek government, which came to power in October promising higher spending and wages, is trying to persuade investors it can cut its deficit from 12.7 percent of output to below the European Union’s 3 percent limit by 2013. Greece’s Prime Minister George Papandreou said yesterday he’s determined to turn around the country’s economy and that a default is “simply out of the question.”

Austria said on Dec. 14 that it was nationalizing Hypo Alpe-Adria Bank and injecting as much as 450 million euros ($649 million) into the lender.

Dollar Index

The yen and dollar rose as investors retreated from higher- yielding assets. Ten-year Treasuries jumped the most since October yesterday and the Standard & Poor’s 500 Index tumbled 1.2 percent. The MSCI Asia Pacific Index of regional shares dropped 0.2 percent.

The ICE futures exchange’s Dollar Index rose the most in two weeks yesterday, advancing as much as 1.2 percent to 77.94, the highest since Sept. 8. It was the biggest one-day gain since Dec. 4, when the Labor Department reported fewer-than-expected job losses.

The Dollar Index gained 13 percent during the six months beginning in September 2008 as investors bought dollars while seeking a refuge from the collapse of global financial markets. The dollar slid 17 percent from the beginning of March through Dec. 3 as investors dumped the U.S. currency in favor of higher- yielding assets while the Fed kept its target rate near zero.

In the past two weeks, the index rebounded 4 percent on signs of economic recovery, prompting traders to speculate that U.S. policy makers could raise rates sooner than expected.