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Thu 24 Nov 2011 03:36 PM

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Euro rebounds from seven-week low

Currency reacts to German reports showing improved business confidence, economic growth

Euro rebounds from seven-week low
The 17-nation currency also rose versus the pound as European stocks rallied, (AFP/Getty Images)

The euro strengthened from a seven- week low against the dollar as German reports showed business confidence improved and economic growth accelerated even with Europe’s worsening debt crisis.

The 17-nation currency also rose versus the pound as European stocks rallied, spurring demand for the region’s assets. Australia’s dollar advanced on speculation investors are buying the currency to diversify their assets. The yen pared earlier gains after Standard & Poor’s said Japan’s lack of progress in tackling its public debt burden put it at risk of a credit-rating downgrade.

“Risk appetite is looking a bit better,” said Jeremy Stretch, executive director of currency strategy at Canadian Imperial Bank of Commerce in London. “If we see a small improvement in risk or modest rebound in the euro, I wouldn’t necessarily want to run too hard with that.”

The euro appreciated 0.2 percent to $1.3373 at 10:34 am London time, after slipping to $1.3320 on Wednesday, the lowest level since Oct. 6. The currency rose 0.3 percent to 86.17 U.K. pence, and was little changed at 103.18 yen. The yen climbed 0.2 percent to 77.13 per dollar, trimming a gain of 0.4 percent.

The Munich-based Ifo institute said its business climate index increased to 106.6 this month from 106.4 in October. Economists expected a decline to 105.2, according to a Bloomberg News survey. Gross domestic product advanced 0.5 percent last quarter, the Federal Statistics Office said, confirming an initial estimate published on Nov. 15. That was an acceleration from 0.3 percent growth in the previous three months.

The Stoxx Europe 600 Index gained 0.7 percent, snapping a five-day decline.

Europe’s shared currency tumbled 1.2 percent against the greenback on Wednesday after Germany received insufficient bids at a bond auction, fueling concern that Europe’s sovereign-debt crisis is driving away investors from the region’s assets.

Swings in currency markets may be exaggerated on Thursday because of lower than usual volumes during the US Thanksgiving national holiday, Stretch said.

The Australian dollar rose for the first time in four days on speculation investors are buying the currency in a bid to diversify their holdings amid Europe’s fiscal crisis.

“You are seeing a very, very modest bounce in some of the higher-yielding currencies,” said Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc. “The Australian dollar, like other commodity currencies, continues to benefit to some degree from reserve diversification.”

Australia’s currency gained 0.8 percent to 97.66 US cents after dropping to 96.64 cents on Wednesday, the weakest since Oct 6. The so-called Aussie climbed 0.6 percent to 75.36 yen.

S&P said Japanese prime minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, Singapore-based director of sovereign ratings at S&P, said in an interview. It “may be right in saying that we’re closer to a downgrade.”

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