Dollar, Yen Rise as Geithner’s Plan Spurs Demand for Haven

Feb. 10 (Bloomberg) -- The dollar and yen rose versus most of their major counterparts on bets Treasury Secretary Timothy Geithner’s financial recovery plan will fall short of reviving lending, increasing demand for a haven.

The yen advanced more than 6 percent versus the Australian dollar, the biggest intraday gain in more than two months, on speculation investors reduced holdings of higher-yielding assets as Geithner pledged financing for programs that may grow to $2 trillion. The dollar increased for the first time in three days versus a gauge of currencies of six major U.S. trading partners.

“It’s classic risk aversion as the market expresses its disappointment to the Treasury’s plan,” said Adam Boyton, a senior currency strategist in New York at Deutsche Bank AG, the world’s largest foreign-exchange trader. “Geithner’s plan lacks a lot of details.”

The dollar gained 0.8 percent to $1.2896 per euro at 4:04 p.m. in New York, from $1.3003 yesterday. The yen strengthened versus the euro for the first time in four days, appreciating 2.2 percent to 116.42 per euro from 118.94. Japan’s currency advanced 1.3 percent to 90.31 per dollar from 91.46.

The yen advanced as much as 6.1 percent to 58.46 versus the Australian dollar and 4.5 percent to 130.36 against the pound on speculation losses at financial firms will deepen, encouraging investors to sell higher-yielding assets and pay back low-cost loans in Japan. The Bank of Japan’s 0.1 percent target lending rate compares with 3.25 percent in Australia and 1 percent in the U.K.

Emerging Markets

Mexico’s peso, Brazil’s real and South Africa’s rand depreciated more than 2 percent against the dollar on reduced demand for emerging-market assets. The peso lost 2.2 percent to 14.5240 versus the dollar, the real declined 2.2 percent to 2.3093 and the rand weakened 2.9 percent to 9.9224.

The ICE’s Dollar Index, which tracks the greenback versus the euro, the yen, the pound, the Canadian dollar, the Swedish krona and the Swiss franc, rose 1.2 percent to 85.81 today. It lost 0.8 percent last week in its first weekly drop this year on speculation the bank-rescue plan would reduce demand for the world’s reserve currency.

The Australian dollar lost 3.9 percent to 65.20 U.S. cents today after gaining 5.9 percent versus the greenback last week, the biggest rally since the end of October.

“The market had been buying risky assets in the past several days in anticipation that we may get some more specifics,” said Steven Englander, chief U.S. currency strategist at Barclays Capital in New York, of Geithner’s plan. “What came out was not consistent with the buying of risky assets. We are back to where we were a week ago.”

Public-Private Fund

The Treasury is creating a Public-Private Investment fund, with an initial capacity of $500 billion that could grow to $1 trillion, to provide financing for private investors to buy distressed securities, Geithner said in a speech in Washington.

The department will also work with the Federal Reserve to finance as much a $1 trillion in new consumer and business loans. The new Consumer and Business Lending Initiative is modeled on an earlier program to support new credit.

“Nothing new,” said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. “It’s not meaty in terms of getting lending out there now.”

The U.S. Senate approved a separate $838 billion economic stimulus package today, clearing the way for negotiations with the House over a compromise plan lawmakers said they want to send to President Barack Obama quickly.

Senate Vote

The chamber today voted 61-37 to approve the measure. It provides $293 billion in tax cuts and more than a half trillion dollars in new spending that lawmakers call critical to preventing the economy from sinking deeper into recession.

U.S. stocks plunged today, with the Standard & Poor’s 500 Index losing 4.9 percent, the most since Obama was inaugurated, on concern the government’s bank rescue won’t work.

“There’s still room for equities to decline,” said Dustin Reid, director of currency strategy in Chicago at RBS Global Banking & Markets. “If that’s the case, then the dollar bid will last longer and the yen will also benefit.”

The euro weakened earlier as much as 1.5 percent versus the dollar after the Nikkei newspaper, citing an interview with Russian Association of Regional Banks head Anatoly Aksakov, reported that Russian banks and businesses may ask foreign lenders to reschedule loans worth $400 billion.

Russian Debt Burden

The 16-nation euro pared its loss against the greenback after Aksakov told Bloomberg News that banks such as London- based HSBC Holdings Plc suggested meetings with Russian companies concerning their ability to meet obligations.

“Several western banks asked about holding discussions,” Aksakov said in an interview with Bloomberg. “It was their initiative to have talks on this topic to look at restructuring the debts of several companies.”

Kazakhstan’s banks may have their ratings cut as the devaluation of the nation’s currency makes it harder for them to repay foreign debt and “substantially increases” credit risk, Moody’s Investors Service said yesterday.

“Central and Eastern Europe, Russia, Turkey and South Africa will underperform for some time, not boding well for the long-term euro outlook,” analysts at BNP Paribas SA led by London-based Hans-Guenter Redeker wrote in a note today. “Bear in mind that most Central and Eastern European countries hold 100 percent of their currency reserves in euros, suggesting a further liquidation of local assets held in foreign accounts implies currency reserves will shrink.”