Aug. 20 (Bloomberg) -- The yen fell against the euro and the dollar as a rebound in Chinese stocks allayed concerns that the global economic recovery is faltering, encouraging investors to buy higher-yielding assets. The euro also rose from near a five-week low versus the Swiss franc on expectations Europe’s manufacturing and service industries contracted at a slower pace, backing the case for the European Central Bank to keep interest rates steady. The pound traded close to a one-week high against the dollar on economist estimates that U.K. retail sales gained in July for a second month, adding to signs the nation’s recession is abating. “The overall trend is clearly for improved risk appetite,” said Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong. “That means riskier currencies such as the Australian and New Zealand dollars will strengthen, while safe-haven currencies like the yen and the U.S. dollar will weaken.” The yen depreciated to 134.24 per euro as of 1:15 p.m. in Tokyo from 133.80 in New York yesterday. Japan’s currency dropped to 94.37 per dollar from 94.08. The euro was unchanged at $1.4224. The European currency was at 1.5178 francs after reaching 1.5137 francs yesterday, the lowest level since July 14. The pound traded at $1.6530 from $1.6529. The euro may gain to as high as 140 yen by the end of September, Kotecha said. The Shanghai Composite Index rose 2.1 percent, and the MSCI Asia-Pacific Index of regional shares added 0.4 percent today, paring a 2 percent decline so far this week. The benchmark interest rate is 0.1 percent in Japan, compared with 3 percent in Australia and 2.5 percent in New Zealand, making the South Pacific nations’ assets attractive to Japanese investors seeking higher returns. Europe Manufacturing The euro rose versus the franc as economists in a Bloomberg News survey said the composite index of manufacturing and service industries in Europe probably climbed to 48 this month from 47 in July. That would be the highest since August 2008. Markit Economics will release the data tomorrow. The index is based on a survey of purchasing managers by Markit and a reading below 50 indicates a contraction. “The euro-zone’s PMI is likely to improve, suggesting the overall economy is doing better,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “The euro will probably strengthen” to $1.4280 and 134.50 yen today, he said. ECB Governing Council member Axel Weber said the bank will start withdrawing stimulus measures once the economy recovers and financial markets stabilize, Die Zeit reported yesterday, citing an interview. Aussie Higher The ECB will keep its benchmark interest rate at 1 percent for the rest of this year, according to the median estimate in a separate Bloomberg survey. Australia’s dollar may gain a third day against the greenback before a U.S. report forecast to show an index of economic indicators rose for a fourth consecutive month. “It’s more of stabilization rather than a turnaround at this point,” said Katie Dean, senior economist in Melbourne at Australia & New Zealand Banking Group Ltd. “We could see a small move in terms of risk trade. The Aussie is going to be a little bit higher, the euro higher and the U.S. dollar weaker.” The Conference Board’s gauge of the U.S. economic outlook for the next three to six months increased 0.7 percent in July after advancing at the same rate in June, another Bloomberg survey showed. The New York-based research group will report the data today. U.K. Retail Sales U.K. retail sales gained 0.4 percent last month after rising 1.2 in June, according to a survey of economists. The Office for National Statistics is expected to release the data today in London. “Good U.K. data supporting inflation would be a plus for stocks and encourage risk taking,” said Takashi Kudo, director of foreign-exchange sales at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “That would be positive for the pound.” Australia’s dollar traded at 83.02 U.S. cents from 82.87 cents yesterday, and rose to 78.35 yen from 77.97 yen. Australia’s currency may fall to the lowest level since April against Japan’s currency as implied volatility surges, according to technical analysts at Citigroup Inc. Fibonacci Retracement Implied volatility on three-month Australian dollar-yen options is “on the cusp of a surge” as it faces resistance at a 76.4 percent so-called Fibonacci retracement from its October peak of 53.31 percent, Citigroup analysts led by Tom Fitzpatrick and Shyam Devani wrote in a note. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Implied volatility gained to 23.5 percent yesterday from 21.2 percent on Aug. 12, the retracement resistance level. Moves to new lows are “losing steam,” the analysts wrote. If volatility increases, the Australian dollar will target the 200-day moving average of 68.7 yen in the next few weeks, as the two correlate inversely, Devani said in an interview. That would be the lowest level since April 29, when the Australia’s currency touched 67.97.

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