Yen Declines for Third Day Versus Euro After Japan GDP Report

May 20 (Bloomberg) -- The yen fell for a third day against the euro as stocks gained after a government report showed Japan’s economy shrank less than expected last quarter, spurring investors to buy higher-yielding assets.

The dollar strengthened against the yen as the yield differential between Japanese and U.S. debt expanded to the widest in more than a week. The pound strengthened yesterday to the highest level versus the dollar since December after interbank broker ICAP Plc posted increased profit and retailer Marks & Spencer Group Plc’s net income beat analysts’ estimates.

“The report suggests the economic downturn may be moderating,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This may lead to stronger equities and selling of the yen.’

The yen fell to 131.17 per euro at 9:02 a.m. in Tokyo from 130.81 yesterday in New York. Japan’s currency declined to 96.18 per dollar from 95.97. Europe’s single-currency bought $1.3646 from $1.3630. The pound was little changed at $1.54881 after appreciating as much as 1.1 percent yesterday to $1.5523, the highest level since Dec. 18.

Japan’s economy shrank an annualized 15.2 percent in the three months ended March 31, following a 12.1 percent contraction the previous quarter, the Cabinet Office said today in Tokyo. Economists in a Bloomberg News survey expected a 16.1 percent contraction.

The dollar rose versus the yen as the difference in yields between 10-year Japanese and U.S. debt expanded to 1.82 percentage points, from 1.70 percentage points at the end of last week, according to data compiled by Bloomberg. The spread is likely to narrow to 1.65 percentage points by the end of June, according to a weighted Bloomberg survey of economists.