By Yasuhiko Seki and Ron Harui Sept. 16 (Bloomberg) -- The dollar traded near the weakest level this year against the euro before a report forecast to show U.S. manufacturers boosted output, reducing demand for the relative safety of the greenback. The Australian and New Zealand currencies were near this year’s highs as Asian stocks extended a global rally after the biggest gain in U.S. retail sales for three years encouraged investors to buy riskier assets. Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended and billionaire investor Warren Buffett said his company is buying equities. “Higher-yielding currencies and riskier assets are in demand as risk appetite returns,” said Masashi Hashimoto, senior foreign exchange analyst at Bank of Tokyo Mitsubishi UFJ Ltd., a unit of Japan’s biggest banking group. “Funding currencies like the yen and dollar will weaken.” The dollar dropped to $1.4682 per euro as of 12:50 p.m. in Tokyo from $1.4658 yesterday in New York, when it reached $1.4686, the highest since Dec. 18. Japan’s currency traded at 133.65 per euro from 133.47 yesterday in New York. It was at 91.04 per dollar from 91.05 yen. Australia’s currency bought 86.66 U.S. cents, close to its strongest since August 2008, from 86.34 cents yesterday in New York. New Zealand’s dollar fetched 70.60 U.S. cents from 70.50 cents, near its highest since August 2008. Retail Sales Benchmark interest rates of 3 percent in Australia and 2.5 percent in New Zealand attract investors who invest in the countries’ assets using loans from nations with lower costs such as the 0.1 percent benchmark in Japan and the U.S. rate which is as low as zero. The risk in such carry trades is that exchange- rate changes can erase profits. The Dollar Index traded near the lowest in one year after a Commerce Department report showed U.S. retail sales increased 2.7 percent last month following a revised 0.2 percent drop in July, adding to signs the recession is ending. The Federal Reserve Board’s measure of U.S. production, due for release today, rose 0.6 percent, the most since October, according to a Bloomberg News survey of economists. The report is forecast to show the proportion of plant capacity in use climbed to 69 percent, the highest in five months. The Nikkei 225 Stock Averaged gained 1.6 percent and the MSCI Asia Pacific Index of regional shares advanced 1.7 percent. Buffett Buying Stocks Buffett’s Berkshire Hathaway Inc. is “buying stocks right as we speak,” he told a conference in California, adding that he’s getting a “lot for my money” in equities. The Dollar Index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, traded at 76.506 from 76.520 yesterday. It earlier hit 76.406, the lowest level since September 2008. The U.S. government may “welcome” carry trades in dollars, Credit Suisse Group AG said. “A weak dollar should be welcomed, since it signals a recovery in the global economy and financial markets,” said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo. “The U.S. will likely welcome dollar carry trades.” Japan’s government may increase purchases of Treasuries if policy coordination between the nation and the U.S. is needed to stem the dollar’s decline, Shirakawa said. The yen may rise for the first time in three days against the dollar on speculation foreign investors will shift their focus to Japanese assets from the rest of Asia. Japanese Politics “The Japanese stock market, which has lagged behind the recent bull-run of the regional market, is gradually catching up thanks to buying by foreign investors,” said Takao Yahata, senior manager of foreign exchange and financial-products trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest banking group. “This capital inflow into Japan buoys the yen.” Foreign investors bought 180.8 billion yen ($2 billion) in Japanese bonds and 132.4 billion yen in stocks, and sold 26.3 billion yen in short-term securities during the week ended Sept. 5, according to figures released by the Ministry of Finance. Prime Minister Taro Aso and his Cabinet resigned this morning, paving the way for Yukio Hatoyama to lead the first change of Japan’s government in 15 years. Hatoyama is set to be elected prime minister by parliament this afternoon. His Democratic Party of Japan won a landslide victory last month, securing 308 of the 480 seats in the Lower House and ousting Aso’s Liberal Democratic Party, which had governed for 54 of the past 55 years. The pound fell to a four-month low against the euro before a U.K. report that may show the nation’s jobless rate rose to the highest level in 13 years, backing the case for the Bank of England to keep borrowing costs low. Sterling ‘at Risk’ Overall U.K. unemployment, as measured by International Labour Organization standards, climbed to 8 percent in the three months to July, the most since 1996, from 7.8 percent between April and June, a Bloomberg survey showed. The Office for National Statistics releases the data today in London. Bank of England Governor Mervyn King said yesterday policy makers are considering lowering the rate they pay financial institutions to hold reserves at the bank to encourage lending. “Sterling is the currency most at risk among the majors in our view,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a research note yesterday. “The news and data from the U.K. have added to the bearish outlook.” The Bank of England currently pays financial institutions 0.5 percent to hold reserves at the central bank. While the central bank is boosting its reserves through asset purchases under its so-called quantitative-easing program, King said he doesn’t want them to grow too much. The pound dropped to 89.12 pence per euro after earlier reaching 89.17 pence, the weakest since May 15, from 88.91 pence in New York yesterday.

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