By Lukanyo Mnyanda and Yasuhiko Seki Sept. 14 (Bloomberg) -- The dollar and yen rose against most of their major counterparts on speculation a trade dispute between the U.S. and China will slow the global economic recovery, reducing demand for higher-yielding assets. Sterling fell for the first time in five days on concern the U.K.’s housing slump will resume next year. The New Zealand dollar was the biggest loser versus the yen and greenback among major currencies as China said it was investigating alleged dumping of American products after the U.S. imposed tariffs on the Asian nation’s tires. “The dollar is back in demand as the market gets worried that trade relationships between the U.S. and China are souring,” analysts led by Hans-Guenter Redeker, London-based head of currency strategy at BNP Paribas SA, wrote in a client report today. “Today, we expect equity and commodity markets to come under selling pressure.” The yen traded at 132.13 per euro at 7:23 a.m. in New York, compared with 132.17 on Sept. 11. Japan’s currency was at 90.85 against the dollar after earlier appreciating to 90.21, the strongest level since Feb. 12. The dollar rose 0.2 percent to $1.4543 per euro, from $1.4571 at the end of last week, when it reached $1.4634, the weakest level this year. Asian and European stocks fell, with the Dow Jones Stoxx 600 Index sliding 1.1 percent. The MSCI Asia Pacific Index dropped 1.8 percent, with futures on the Standard & Poor’s 500 Index retreating 0.8 percent. Chinese industries complain that they’re being hurt by “unfair trade practices,” the nation’s Ministry of Commerce said on its Web site yesterday. The dumping investigation relates to poultry alone, a spokesman said in Beijing today. The ministry didn’t specify the value of imports of the products. U.S. Tire Tariffs Rising protectionism may hamper world trade and undermine the global economy’s recovery from recession, the European Central Bank said last week. The U.S. placed tariffs starting at 35 percent on $1.8 billion of tire imports from China, backing a United Steelworkers union complaint against the second-largest U.S. trading partner. “Whenever a story of this magnitude comes out, it’s an excuse to take risk off the table,” said Neil Mellor, a currency strategist in London at BNY Mellon Corp., referring to the dumping case. “The yen is the principal beneficiary.” The U.S. currency gained 1.2 percent to 69.92 U.S. cents versus the New Zealand currency and the yen advanced 0.9 percent to 6.74 versus the Mexican peso on speculation investors will reduce carry trades, in which they sell the currency of a nation with low borrowing costs and buy assets where returns are higher. The U.S. target lending rate of zero to 0.25 percent and Japan’s 0.1 percent benchmark compare with 2.5 percent in New Zealand and 4.5 percent in Mexico. Dollar Funding Using the world’s reserve currency to fund carry trades became more profitable and less risky last month than with the yen for the first time since March 2008, Bloomberg data show. The difference in Sharpe ratios for dollars and yen, a measure of performance relative to risk, has averaged 1.35 since May, compared with minus 0.37 since 2004. The higher the Sharpe ratio, the higher the risk-adjusted return. “The dollar is the big funding currency,” said Jonathan Clark, vice chairman of New York-based FX Concepts Inc., the world’s largest currency hedge fund, with $9 billion in assets under management. “The reason why people are borrowing the U.S. dollar for carry trade is A: It’s very cheap to fund, and B: The expectation is it’s going to go down.” Dollar Libor The three-month London interbank offered rate for dollars, a benchmark for about $360 trillion of financial products, fell last week to an all-time low of 0.299 percent, compared with 0.366 percent for the yen and 0.305 percent for the Swiss franc, another traditional funding currency, according to the British Bankers’ Association in London. Over the past 20 years, dollar Libor averaged almost 3 percentage points more than yen Libor. The yen may be poised for a reversal after gaining 2.5 percent versus the dollar last week, according to Jim O’Neill, head of global economic research at Goldman Sachs Group Inc. in London. “If I look at the underlying fundamentals, virtually everything that drove the yen stronger in its floating-exchange history isn’t there anymore,” he said in an interview on Bloomberg Television in London today. “The yen doesn’t deserve to be anywhere near this, and I don’t see it lasting.” Sterling declined from the highest level in more than a month, sliding 0.7 percent to $1.6536. It lost 0.6 percent to 87.97 pence per euro. U.K. house prices will stagnate for two years after “dipping” in the first half of 2010, said Ernst & Young LLC’s Item Club in a report today. Weaker Krone The Norwegian krone dropped to the weakest level in a week against the dollar. Voters are split between re-electing Prime Minister Jens Stoltenberg’s Labor-led coalition, which guided the nation out of a recession, and giving the helm to a splintered opposition promising tax cuts and increased spending, opinion polls show. Norway’s currency lost as much as 0.9 percent to 5.9999 against the dollar, the weakest level since Sept. 7 and was later at 5.9802. New Zealand’s dollar also weakened as retail sales unexpectedly slid in July. Sales declined for a second month, dropping 0.5 percent from June, compared with a 0.4 percent gain forecast by economists surveyed by Bloomberg.

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