Yen Heads for Second Weekly Loss Versus Euro as Asia Stock Gain

July 24 (Bloomberg) -- The yen headed for a second weekly decline against the euro as Asian stocks extended a worldwide rally on improving company earnings, damping demand for the relative safety of Japan’s currency.

The yen weakened versus 14 of the 16 most-traded currencies today as Japanese financial companies prepared to raise at least 700 billion yen ($7.36 billion) for funds that will invest globally. The Australian and New Zealand dollars rose, set for a second weekly gain against the greenback and the yen, after the Standard & Poor’s 500 Index advanced to an eight-month high.

“Risk appetite is strengthening,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “The Nikkei may reach 11,000 in the near future and the yen may weaken as the global economy is stabilizing.”

The yen traded at 134.41 versus the euro as of 9:11 a.m. in Tokyo from 134.30 yesterday in New York, heading for a 1.2 percent loss this week. Japan’s currency was at 94.93 per dollar from 94.92. The dollar bought $1.4155 per euro from $1.4143, poised for a 0.4 percent drop this week.

Australia’s currency rose 0.2 percent to 77.26 yen and gained 0.2 percent to 81.39 U.S. cents. New Zealand’s dollar climbed 0.2 percent to 62.15 yen and advanced 0.2 percent to 65.48 cents.

Demand for the yen weakened after U.S. stocks surged yesterday with the Dow Jones Industrial Average exceeding 9,000 for the first time since January and the S&P 500 Index gaining 2.3 percent. The Nikkei 225 Stock Average advanced 1.4 percent today to 9,927.69, extending its gained this week to 5.7 percent.

Benchmark Rates

Benchmark interest rates are 3 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Japanese financial institutions are encouraging investors to put money into mutual funds this week focused on assets denominated in currencies such as the South African rand and Brazilian real, according to data compiled by Bloomberg.

The euro headed for a weekly gain versus the dollar before a European report today that economists said will show the region’s manufacturing and service industries contracted at a slower pace this month.

A composite index for the 16-nation euro area rose to 45.3 in July from 44.6 in June, according to the median forecast of economists surveyed by Bloomberg News. A reading below 50 indicates contraction.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 86.5 from 85.9 in June, according to a separate Bloomberg survey before the organization releases the survey today.

“Any downside impetus for the euro-dollar is dissolving for the near term as positive investor sentiment continues to build,” Emmanuel Ng, an economist in Singapore at Oversea- Chinese Banking Corp., wrote in a research note yesterday.