Yen, Dollar Gain on Concern U.S. Carmakers May Face Bankruptcy

March 30 (Bloomberg) -- The yen and the dollar rose against the euro after an Obama administration official said bankruptcy may be the best option for General Motors Corp. and Chrysler LLC, spurring investors to seek the shelter of the two currencies.

The yen extended gains versus all 16 major currencies as Asian stocks ended a five-day rally on concern the global recession will lead to further losses in the financial industry. The greenback advanced for a third day versus the euro on speculation the European Central Bank will cut interest rates this week to the least since the European currency was introduced in 1999.

“There is no doubt that this report on the U.S. carmakers is fueling risk aversion,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The bias is for the yen, followed by the dollar, to be bought.”

The yen advanced to 128.25 per euro as of 6:58 a.m. in London from 130.04 in New York last week. The dollar rose to $1.3214 per euro from $1.3287. The greenback climbed to $1.4206 per British pound from $1.4320. Japan’s currency gained to 96.96 per dollar from 97.86.

The Dollar Index rose for a third day after the Obama administration official, who declined to be identified, said the automakers must overhaul their recovery plans with deeper concessions to justify further aid from U.S. taxpayers.

Seeking Aid

GM asked for as much as $16.6 billion in additional assistance after receiving $13.4 billion since December. Chrysler requested $5 billion after getting $4 billion. Both had been asked to show progress by the end of this month in matters such as GM’s need to cut its unsecured debt by two-thirds.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, climbed 0.5 percent to 85.538 after reaching 85.608, the highest level since March 18.

The yen strengthened as the MSCI Asia Pacific Index slumped 3.6 percent, its biggest loss in more than two months. Futures on the Standard & Poor’s 500 Index dropped 1.9 percent.

“The tumble in equities is sparking risk aversion among investors,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest bank. “The yen and the dollar are likely to be bought.”

ECB Rate Bets

The euro weakened for a second day versus the yen on expectations ECB President Jean-Claude Trichet will signal further interest rate-cuts when he speaks before the Committee on Economic and Monetary Affairs today. Trichet speaks at 4:30 p.m. in Brussels.

The central bank is likely to reduce interest rates to 1 percent at its meeting on April 2, according to a Bloomberg News survey of economists.

The 16-nation currency declined amid speculation leaders from the Group of 20 nations, who meet on April 2 in London, will fail to agree on fiscal measures to counter the slump. European officials earlier this month said they had spent enough money to combat the financial crisis and don’t want to blow out their budgets.

“The euro will weaken against the U.S. dollar given that the market expects the ECB to cut interest rates this week,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “Also European leaders, except for the U.K., will not want to do much more at the G-20 meeting, so this will also be very negative for the euro.”