Dollar May Decline as Stock Advances Reduce Demand for Safety

July 28 (Bloomberg) -- The dollar may fall for a third day against the euro on speculation Asian stocks will extend a global rally on signs the economy may be shaking off the worst recession since World War II, sapping safety demand.

The greenback traded near the lowest level this year against the currencies of six major U.S. trading partners including the euro as a report showed sales of new homes rose last month by the most in eight years. The yen fell against most of its major counterparts as analysts raised their profit estimates for U.S. companies for the first time since 2007.

“Rising share prices will make it easier for investors to take more risks,” said Toshiya Yamauchi, manager of the foreign-exchange margin trading department in Tokyo at Ueda Harlow Ltd. “Under such circumstances, the yen and the dollar will weaken, especially against the currencies of resource-rich nations and emerging markets.”

The dollar was at $1.4237 as of 8:07 a.m. in Tokyo from $1.4232 yesterday when it touched $1.4298, the weakest level since June 3. The Dollar Index, which the ICE uses to track the greenback against currencies also including the yen, pound and Swedish krona, touched 78.396 yesterday, near this year’s low of 78.334 on June 2.

The euro rose to 135.60 yen from 135.48 in New York where it hit 136.10 yen, the highest since July 2. The yen was at 95.25 from 95.18 yesterday when it reached 95.38, the lowest since July 7.

Yen Drops

The yen traded near the lowest level in almost three weeks against the dollar before a report that economists said will show U.S. home prices fell at a slower pace in May, adding to signs that the American economy is stabilizing.

The S&P/Case Shiller index of 20 major metropolitan areas, due July 28, will probably show property values fell 17.9 percent in May from a year earlier, according to a Bloomberg News survey of economists. The measure was down 18.1 percent in the 12 months ended April.

Wall Street firms raised profit forecasts on companies listed on the Standard & Poor’s 500 Index 896 times in June and lowered them 886 times, according to data compiled by JPMorgan Chase & Co. The last time analysts were bullish on a net basis was in April 2007.

The yen and the dollar may fall after the Nikkei 225 Stock Average completed yesterday a ninth-straight trading day of gains, the longest stretch in over 21 years, boosting demand for higher-yielding assets in resumed carry trades.

In carry trades, investors borrow at a low rate in one country and invest in another nation with higher returns. Benchmark interest rates of 8.75 percent in Brazil and 0.25 percent in Sweden compare with 0.1 percent in Japan and as low as zero in the U.S.