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Yen, Dollar Rise on Rate Outlook; Stocks, Commodities Decline
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By Justin Carrigan

Dec. 7 (Bloomberg) -- The yen strengthened and the dollar rose to its highest level in a month against the euro as investors weighed whether the world economy is recovering fast enough to warrant higher central bank interest rates. U.S. stock index futures and commodities fell.

The yen advanced against all 16 most-traded currencies tracked by Bloomberg as of 8:14 a.m. in New York. The dollar gained versus 15. The MSCI Emerging Markets Index dropped the most in six days, losing as much as 0.8 percent. Dubai’s equity index plunged 5.8 percent to a four-month low. The Dow Jones Stoxx 600 Index of European companies sank 0.6 percent. Futures on the Standard & Poor’s 500 Index slipped 0.3 percent, while gold fell for a third day.

Federal Reserve Chairman Ben Bernanke speaks today for the first time since the Dec. 4 U.S. employment report signaled a surprise drop in the jobless rate, stoking expectations the Fed may raise rates sooner than economists had anticipated. Investors are concerned banks may have to increase writedowns that have reached $1.7 trillion worldwide since the credit crunch began, as Dubai World seeks to delay payment on $26 billion of debt.

“On the U.S. dollar front we now have an early indication on the level of volatility that a shift in monetary policy can trigger,” Khurram Butt, in the Treasury sales division of Europe Arab Bank Plc in London, wrote in a client note. “Before the job report, the chances of a June Federal Reserve rate hike was implied at only 35 percent, but this jumped to above 50 percent after the unemployment number came out.”

Yen, Dollar Gain

The yen rose most against higher-yielding currencies, advancing 1.5 percent versus the New Zealand dollar. The U.S. dollar traded at its highest level since Nov. 4 versus the euro, extending gains made at the end of last week that followed the U.S. employment report.

The U.S. lost 11,000 jobs in November, less than the 125,000 median forecast of 82 economists in a Bloomberg survey, the Labor Department said Dec. 4. Fed-funds futures contracts on the Chicago Board of Trade showed today a 16 percent probability the central bank will increase its benchmark overnight rate to at least 0.5 percent by March, up from 11 percent a week ago.

The MSCI World Index of 23 developed nations’ stocks retreated 0.4 percent. The MSCI Asia Pacific Index rose 0.1 percent as the region’s exporters increased. Canon Inc., the world’s largest maker of cameras, added 3.3 percent in Tokyo. Billabong International Ltd., a clothing maker that generates more than half its sales in the Americas, added 4.9 percent in Sydney.

Futures Fall

Fresnillo Plc, the world’s largest primary silver producer, and Xstrata Plc led basic-resources producers lower in London, each sinking 2.1 percent. Siemens AG, Europe’s biggest engineering company, slipped 2.1 percent in Frankfurt after Morgan Stanley cut its recommendation on the shares.

The decline in U.S. stock-index futures indicated the S&P 500 may retreat from last week’s advance. The Fed on Nov. 4 pledged to keep its benchmark overnight lending rate near zero for an “extended period.” The jobs report showed the unemployment rate unexpectedly dropped to 10 percent from 10.2 percent in November.

The Dubai Financial Market General Index sank the most among benchmark equity indexes worldwide. The measure has tumbled 17 percent since Dubai announced on Nov. 25 that state- owned Dubai World would ask creditors for a “standstill” agreement on its debt, including property company Nakheel PJSC’s $3.5 billion bond due for repayment in a week.

Russian Stocks

Russia’s Micex Index dropped 1.7 percent as oil company OAO Rosneft sank on falling crude prices. South Africa’s FTSE/JSE Africa All Shares Index declined 1.4 percent, after gold producer AngloGold Ashanti Ltd. retreated 4.2 percent.

Gold for immediate delivery fell for a third day in London, slumping 1.5 percent to $1,144.38 an ounce. The metal reached a record $1,226.56 on Dec. 3. Copper for delivery in three months retreated 0.8 percent on the London Metal Exchange. Oil for January delivery fell 0.8 percent to $74.81 a barrel in New York trading.

Treasuries rose, with the 10-year note yield dropping 1 basis point to 3.46 percent, even as the U.S. government prepared to sell $74 billion in notes and bonds this week, starting with an auction of $40 billion of three-year notes tomorrow. The yield on the German bund fell 3 basis points to 3.20 percent.

To contact the reporter on this story: Justin Carrigan in London at [e-mail]
Last Updated: December 7, 2009 08:27 EST