Aug. 26 (Bloomberg) -- The euro rose, approaching the strongest level in 11 weeks against the pound, on speculation business sentiment in Germany will point to an economic recovery in the region. The euro climbed against 10 out of its 16 most-active counterparts before a report forecast to show that sentiment improved this month in Europe’s biggest economy. The yen pared gains as Asian stocks advanced, damping demand for Japan’s currency as a refuge. “The slew of economic data of late suggests that the global economy is now on the mend,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest bank. “Lower-yielding currencies like the yen and the dollar will underperform against higher-yielding ones like the euro as risk appetite improves.” Europe’s single currency was at 87.61 pence as of 12:40 p.m. in Tokyo from 87.45 pence in New York yesterday, when it rose to 87.65 pence, the highest level since June 8. The euro was at $1.4302 from $1.4296 yesterday. The yen traded at 134.62 per euro from 134.65 yesterday in New York. The Japanese currency was at 94.14 per dollar from 94.18 yesterday. The Nikkei 225 Stock Average rose 0.6 percent and the MSCI Asia Pacific Index of regional shares advanced 0.4 percent. Ifo Gauge The Ifo institute in Munich will say its business climate index, based on a survey of 7,000 executives, increased to 89 from 87.3 in July, according to a Bloomberg News survey of economists. That would be the highest reading since October 2008. Ifo releases the report today. “Business sentiment will probably improve, which is a plus for the economy,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. “The euro may trade with a firm tone today, possibly targeting $1.4350.” The yen gained in early trading on concern financial losses will delay a recovery in the global economy. The currency pared its advance as Asian stocks extended gains, led by Chinese shares. “There are two conflicting trading leads on risk- sentiment,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “There is a tug of war between concerns over financial institutions and rising stock prices.” The yen climbed after Colonial BancGroup Inc., the bank holding company under a criminal probe that was taken over Aug. 14 by North Carolina lender BB&T Corp., filed for bankruptcy. Financial Woes Colonial, a Montgomery, Alabama-based holding company, sought Chapter 11 protection yesterday, listing assets of $45 million and debts of $380 million. Its banking unit became the biggest bank to be seized by regulators since the collapse last year of Washington Mutual Inc. The company provided funding for Taylor Bean & Whitaker Mortgage Corp., the 12th-largest U.S. home lender, which shuttered its mortgage-lending a week after being suspended by federal agencies. The yen strengthened yesterday after Atlanta- based SunTrust Banks Inc. said U.S. financial institutions may report more credit losses as commercial real estate falters. Lloyds Writedowns The pound fell to a one-month low against the yen after the Financial Times reported that Lloyds Banking Group Plc may have to write off 500 million pounds ($817 million) on loans made to Admiral Taverns Ltd. The U.K. pub operator is in talks with lenders about a possible debt-for-equity swap after it breached banking covenants, the FT reported, citing accounts filed yesterday. Lloyds’s Bank of Scotland unit is the company’s biggest lender, the FT said. “The report suggests the state of the financial sector in the U.K. is still worrying,” said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. in Tokyo. “It’s negative for the pound and positive for the yen and the dollar.” The pound declined to 153.69 yen from 154.00 yen in New York yesterday, after earlier falling to 153.12 yen, the lowest level since July 22. -- With assistance from Steven Church in Wilmington and Edvard Pettersson Los Angels.

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