Euro Rises as German Lawmakers Approve Expansion of Bailout Fund
Sept. 29 (Bloomberg) -- The euro rose toward a one-week high versus the dollar as Germany's lower house of parliament approved the expansion of a bailout fund for debt-stricken euro- area nations to help contain the sovereign-debt crisis.
The 17-nation currency strengthened against 13 of 16 major counterparts as German Chancellor Angela Merkel won the backing of her coalition to expand the powers of the European Financial Stability Facility. The yen weakened as Asian and European stocks reversed losses, spurring demand for higher-yielding assets. South Korea's won declined after the nation's current- account surplus shrank.
"The German talk about the euro zone is becoming a bit more positive, which reduces the risk of a disorderly breakup," said Adrian Schmidt, a currency strategist at Lloyds Bank Corporate Markets in London.
The euro gained 0.7 percent to $1.3642 at 11:26 a.m. in London after rising to $1.3690 yesterday, the strongest since Sept. 21. The currency appreciated 0.8 percent to 104.59 yen. The yen was little changed at 76.69 per dollar.
Lloyds's Schmidt said he is "generally more positive" on the euro and estimates the currency will end 2011 at about $1.40. It may still "suffer a dip" to as low as $1.32 before year-end, he said.
Lawmakers in the Bundestag voted 523 in favor of the legislation, while 85 voted against; three abstained. The legislation is set to be debated and set to a non-binding vote in the upper house, or Bundesrat, tomorrow.
Global Poll
The vote in Berlin on changes to the EFSF allows the fund to buy the bonds of distressed member states and offer emergency loans to governments, raising Germany's guarantees to 211 billion euros from 123 billion euros.
About 93 percent of investors expect Greece to eventually default, according to the quarterly Global Poll of 1,031 Bloomberg subscribers. Forty percent see the currency bloc losing at least one member in the next year.
Europe's benchmark Stoxx Europe 600 Index of shares rose 0.2 percent, reversing an earlier decline of as much as 0.7 percent.
Gains in the euro were tempered after Italy's borrowing costs rose at a government debt sale today. Italy's five-year credit-default swaps were at 462.5 basis points yesterday, showing traders see a 34 percent chance for the nation's nonpayment, compared with 4.6 percent for the U.S.
Kokusai Global Sovereign Open, Japan's biggest mutual fund by assets, reduced its holdings of Italian bonds to 7.5 percent of its 2.1 trillion-yen portfolio from 12.3 percent in July, a report for customers of the fund showed on Sept. 26. The asset manager "considered the possibility that Europe's debt problems will last longer," according to the report.
Yen Slides
The yen weakened against most of its major peers as the MSCI Asia Pacific Index of shares rose 0.5 percent, reversing a decline of as much as 1.3 percent. The yen has gained 12 percent in the past three months, the best performer among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes.
Europe's debt crisis continues to be a drag on the U.S. economy, President Barack Obama said yesterday. "In Europe, we haven't seen them deal with their banking system and their financial system as effectively as they needed to," he said.
The U.S. economy expanded at a 1.2 percent annual rate in the second quarter, revised figures from the Commerce Department may show today, according to a Bloomberg News survey of economists. While that compares with the 1 percent pace reported last month, it's less than a third of the growth a year earlier.
The won snapped a two-day gain versus the dollar after a report showed the current-account surplus narrowed in August, dimming the growth outlook for Korea's export-led economy.
The surplus was $401.3 million compared with a revised $3.77 billion in July, the Bank of Korea said today.
"The narrowing of the current-account surplus was expected in the market and points to a bleak outlook for the Korean economy," said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.
The won fell 0.3 percent to 1,173.70 per dollar.
To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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