Sept. 8 (Bloomberg) -- The dollar declined to the lowest level this year against the euro as equity markets rose on speculation the global recession is easing, sapping demand for the currency as a haven. The greenback also fell the most against the currencies of six major U.S. trading partners since July as the dollar became the cheapest funding currency in the London interbank lending market. The yen gained against the dollar as Japan’s corporate bankruptcies dropped for the first time in three months. The pound strengthened as U.K. factory output rose three times as much as economists forecast. “A risk-positive environment is negative to the dollar largely because capital is leaving the U.S.,” said David Powell, a currency strategist in London at Bank of America Corp., in an interview on Bloomberg Television. “Global investors become more bullish on the world economy.” The dollar depreciated 0.9 percent to $1.4467 per euro at 9:49 a.m. in New York, from $1.4332 yesterday, after earlier reaching $1.4507, the weakest level since Dec. 18. The U.S. currency slipped 0.8 percent to 92.30 yen, from 93.08. The euro was little changed at 133.50 yen, compared with 133.39. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies including the euro, yen and Swiss franc, fell as much as 1.2 percent to 77.093 today, the lowest level since Sept. 29, 2008. It was the biggest intraday drop since July 31. A weaker dollar helped gold prices surpass $1,000 an ounce for the first time since February and pushed crude oil prices 3 percent higher to above $70 a barrel. Dollar Libor The three-month dollar Libor rate fell to 0.30 percent today, from 0.31 percent yesterday, according to the British Bankers’ Association. The borrowing cost dropped below that of the Swiss franc, which was at 0.31 percent, for the first time since November, making it the cheapest currency for investors to fund purchases of higher-yielding assets. The corresponding rate for funds in yen was at 0.37 percent. Forward contracts show the greenback weakening to $1.49 per euro in the next 10 years, compared with an average of $1.17 since the single European currency was introduced in 1999. Traders are betting on longer-term declines by the dollar after the U.S. budget gap reached $1 trillion and the economy sank into the deepest recession since the 1930s. Economists forecast the current-account deficit will rise to 3.2 percent of gross domestic product in 2010 and 3.5 percent in 2011 from 2.9 percent this year as consumer and business spending boost imports and oil prices increase, according to the median estimates in Bloomberg News surveys. Europe’s deficit will account for 1.2 percent of GDP, a separate poll shows. ‘Negative’ on Dollar “As the normalization of the markets has taken place, the market starts to differentiate currencies,” said Paresh Upadhyaya, a senior vice president at Boston-based Putnam Investments who helps manage $21 billion. He turned bearish on the U.S. currency in April. “You have to be negative on the dollar.” The dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation, according to the United Nations. UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said yesterday in a report. China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. Krone Versus Dollar The Norwegian krone strengthened 1.1 percent to 5.9314 against the dollar and Australia’s dollar advanced 0.6 percent to 86.10 U.S. cents on speculation investors will increase carry trades, in which they sell the currencies of nations with low borrowing costs and buy assets where returns are higher. The U.S. target lending rate of zero to 0.25 percent compares with 1.25 percent in Norway and 3 percent in Australia. Europe’s Dow Jones Stoxx 600 Index added 0.6 percent, headed for its fourth day of gains. The Standard & Poor’s 500 Index rose 0.8 percent. The pound rose against most of its 16 most-traded counterparts tracked by Bloomberg after the Office for National Statistics in London said factory output rose 0.9 percent in July, compared with the median forecast of 0.3 percent. Sterling appreciated 1.2 percent to $1.6534 and advanced 0.2 percent to 87.52 pence per euro. Business Failures The dollar depreciated against the yen for the first time in four days as Tokyo Shoko Research Ltd. said in Tokyo today that Japanese business failures dropped 1 percent last month from a year earlier. The yen may extend gains on speculation Japan’s new government will refrain from acting to weaken it, according to BNP Paribas SA, the largest French lender. The Democratic Party of Japan, which won a landslide victory in lower house elections on Aug. 30, will officially take over the government for the first time on Sept. 16. “Intervention shouldn’t be abused,” Hirohisa Fujii, a lawmaker for the party, said on Sept. 3. “They have suggested they are going to be less interventionist, and that implies there’s room for more yen appreciation,” said Ian Stannard, a senior currency strategist in London at BNP Paribas. “They have also reiterated that their focus will be on the domestic side of the economy.” To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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