Yen Falls Against Euro, Dollar as Chinese Manufacturing Expands

July 1 -- The yen declined to a two-week low against the euro after a report showed China’s manufacturing expanded for a fourth month, increasing demand for higher- yielding assets amid confidence the global recession is easing.

The yen also fell against the dollar, Swiss franc and the pound as China’s Federation of Logistics and Purchasing said the official Purchasing Managers’ Index rose in June. The Australian dollar gained versus the yen after a report showed the nation’s retail sales climbed for a third month. The euro strengthened against the dollar as every stock market in Europe advanced.

“The China news has created, or at least catalyzed, yen selling,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “There’s more of a chance that we’ll continue to see stocks and risk markets rally, and Japanese investors may go abroad again.”

The yen weakened to 136.33 per euro as of 6:11 a.m. in New York, from 135.21 yesterday. It earlier traded at 136.45, the lowest level since June 15. The yen depreciated to 96.90 per dollar from 96.36. The currency has lost 7.1 percent against the euro and 6.5 percent versus the dollar this year.

Japan’s currency may decline to 100 per dollar and 140 against the single European currency by the end of August as signs of an economic recovery create fewer “reasons to be long yen,” Jones said. A long position is a bet that the price of a currency or security will rise.

The euro advanced to $1.4066 from $1.4033. The won strengthened to 1,267.65 against the U.S. currency, and gained to 13.083 per yen, from 13.218.

Rising Stocks

Europe’s Dow Jones Stoxx 600 Index added 1.1 percent, after gaining 17 percent in the three months through June 30, for its biggest quarterly rally since 1999. Futures on the Standard & Poor’s 500 Index increased 0.7 percent.

The euro also gained against the dollar as a government report showed retail sales in Germany, Europe’s largest economy, unexpectedly rose for a third month in May, strengthening the case for the European Central Bank to keep interest rates unchanged tomorrow. Manufacturing in the euro area contracted for a 13th month in June, Markit Economics said today.

The likelihood that the world’s biggest economies won’t start growing anytime soon is keeping central banks from raising borrowing costs. ECB member Axel Weber, who heads the Bundesbank, said last week policy makers have used up their scope to cut rates. The prospect that the benchmark U.S. rate will stay near zero for several years is “not outside the realm of possibility,” Federal Reserve Bank of San Francisco President Janet Yellen told reporters yesterday.

Chinese Manufacturing

China’s Federation of Logistics and Purchasing said its Purchasing Managers’ Index rose to 53.2 in June from 53.1 in May. A reading above 50 indicates an expansion. Asia’s second- biggest economy may keep improving, enabling the nation to meet its 8 percent growth target this year, central bank Governor Zhou Xiaochuan said this week.

Australia’s retail sales increased by twice as much as economists estimated, the statistics bureau said today in Sydney. Sales gained 1 percent in May from April, when they climbed 0.3 percent, the bureau said. Australia’s dollar was at 78.11 yen, from 77.70 yesterday.

The benchmark interest rate is 0.1 percent in Japan, compared with 1 percent in the 16-nation euro region, 3 percent in Australia and 2.5 percent in New Zealand.

The Korean won added to its best quarterly gain in more than four years on optimism the worst of the nation’s economic slump is ending.

‘Definitely Bullish’

“We are definitely bullish on the won,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. “The external balance has improved a lot, and it seems that the economy has probably bottomed out in the first quarter.”

The yen also fell after the Bank of Japan’s quarterly Tankan survey showed sentiment among the largest manufacturers rose less than economists expected. The index of sentiment among large makers of electronics, cars and other products climbed to minus 48 in June from minus 58 in March, the central bank said in Tokyo. Economists surveyed by Bloomberg News predicted minus 43. A negative number means pessimists still outnumber optimists.

“The Tankan report is something that’s really weighed on the yen,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “It’s as good a reason as any to remain cautious on the Japanese economy.”

The dollar gained for a third day against the yen on speculation a report will show manufacturing in the U.S. shrank in June at the slowest pace in 10 months.

The Institute for Supply Management’s factory index advanced to 44.6, the highest level since August, according to a Bloomberg News survey of economists before the Tempe, Arizona- based group releases the data today. Readings lower than 50 signal contraction.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, was little changed at 80.026.