Yen May Extend Gains as Risk Appetite, Stocks Drop on Jobs Data

Aug. 6 (Bloomberg) -- The yen may rise for a third day versus the dollar and the euro on speculation stocks will extend losses after U.S. reports added to doubts the global recession is easing.

Japan’s currency gained against all 16 most-actively traded counterparts as U.S. service industries contracted at a faster pace and companies cut more jobs than economists forecast, triggering share declines. The U.S. dollar advanced for a second day versus New Zealand’s as a report showed South Pacific nation’s unemployment surged to the highest since 2000.

“The bias is for the yen and the dollar to strengthen,” said Sue Trinh, a Sydney-based senior currency strategist at RBC Capital Markets. “Equity markets are looking pretty tired. The risk is that given that we’ve come up a long way very fast Capital Markets. “Equity markets are looking pretty tired and if we don’t see fresh upward momentum then there’ll be a lot of frustrated longs throwing in the towel.” A long position is a bet an asset will rise.

The yen traded at 94.96 against the dollar at 8:01 a.m. in Tokyo, from 94.97 yesterday in New York, when it gained 0.3 percent. Japan’s currency was at 136.80 per euro from 136.79. The dollar was little changed at $1.4416 per euro after touching $1.4447 yesterday, the weakest level since Dec. 18.

Australia’s currency bought 84.11 U.S. cents from 84.06 cents yesterday and traded at 79.88 yen from 79.82. The New Zealand dollar weakened to 67.20 U.S. cents from 67.29 yesterday. It fetched 63.82 yen from 63.90.

The Standard & Poor 500 Index futures fell 0.4 percent in New York, the second day of losses. The MSCI Asia Pacific Index of regional shares, which has climbed for five-straight months, sank 1 percent yesterday.

Job Cuts

U.S. companies cut an estimated 371,000 workers from payrolls last month after a revised reduction of 463,000 in June, ADP Employer Services reported yesterday. The median forecast of 30 economists in a Bloomberg News survey was for a drop of 350,000. The Labor Department’s data on U.S. initial jobless claims for last week are due today, and its July payroll report will come tomorrow.

The Institute for Supply Management’s index of U.S. non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 46.4 in July from 47 in the previous month, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.

“It appears investors are positioning for a pullback in risk appetite,” said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon Corp., the world’s largest custodial bank. “We haven’t seen concrete signs of a sustainable recovery.”

Peso Gains

Mexico’s peso strengthened yesterday beyond 13 versus the dollar for the first time since June 1 after Moody’s Investors Service affirmed the government’s bond ratings and stable outlook, damping speculation the nation will suffer its first downgrade since 1995.

Morgan Stanley recommended yesterday that its clients add to their bets that the peso will advance versus the dollar, saying the Moody’s affirmation “adds to the positive momentum.” Morgan Stanley expects a “longer-term” move to 12 per dollar, strategists wrote in a research note. The peso gained as much as 1 percent to 12.9981.

The pound may strengthen against the dollar as economists expect the Bank of England to keep its main rate at 0.5 percent. The ECB will probably maintain its benchmark at 1 percent, according to separate survey.