By Yasuhiko Seki and Ron Harui Oct. 23 (Bloomberg) -- The yen dropped to a two-month low against the euro as improved corporate earnings drove stocks higher, adding to evidence of a global economic recovery and fueling demand for higher-yielding currencies. Japan’s currency headed for a weekly decline versus 13 of its 16 most-traded counterparts as the MSCI World Index snapped three days of declines, rising 0.4 percent, before reports forecast to show German business confidence climbed to a 13- month high and U.S. home sales increased. The pound rose to a five-week high against the dollar before data that may show the British economy expanded for the first time since March 2008. “Risk-taking sentiment is firm amid signs economies around the world are recovering,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The yen and the dollar are likely to be sold as their interest rates will probably stay extremely low.” The yen depreciated to 137.84 per euro as of 8:16 a.m. in London from 137.24 in New York yesterday. It earlier traded at 137.93, the weakest level since Aug. 10. The Japanese currency also declined to 91.82 per dollar, from 91.30. The euro bought $1.5014, from $1.5033, after earlier rising to $1.5060, the strongest level since August 2008. Stocks advanced, with the MSCI Asia Pacific Index of regional shares adding 0.4 percent, as South Korea’s Kia Motor Corp. reported record profit and Australian retailer Wesfarmers Ltd. said sales improved. Standard & Poor’s 500 Index futures climbed 0.3 percent, indicating the benchmark gauge will extend yesterday’s 1.1 percent gain in New York. U.S. Home Sales Sales of existing homes in the U.S. rose in September to an annual rate of 5.35 million, a two-year high, according to the median forecast of 76 economists in a Bloomberg survey. The report from the National Association of Realtors is due at 10 a.m. in Washington. The yen also headed for a third weekly drop against the Australian and New Zealand dollars as investors speculated the South Pacific nations will increase interest rates faster than other developed countries. Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., making the higher-yielding currencies favorites for so-called carry trades. The risk in such trades is that currency market moves will erase profits. Australia’s dollar rose to 85.10 yen, from 84.61 yen yesterday, for a 2.2 percent gain this week. New Zealand’s dollar climbed to 69.43 yen from 69.35 yen, for a 3.2 percent advance in the week. Pound’s Advance Better-than-expected earnings are boosting optimism the global recession is coming to an end. Profits have topped estimates at 79 percent of the companies in the S&P 500 that have released results, according to Bloomberg data. That would mark the highest proportion in data going back to 1993. The pound rose to $1.6667 from $1.6624, and traded at $1.6686, the highest level since Sept. 11, putting it on course for a second weekly gain versus the dollar. The Office for National Statistics will say today the U.K. economy expanded 0.2 percent in the third quarter from the previous period, according to the median forecast of 33 economists in a Bloomberg survey. The Bank of England should pause its 175 billion-pound ($292 billion) bond-purchase program as the U.K. emerges from the recession, the National Institute for Economic and Social Research said on Oct. 21. Gross domestic product will probably expand 0.7 percent in the fourth quarter, the London-based institute said. U.K. Economy “There is a perception among some in the market that the U.K. economy is recovering,” said Shinichi Hayashi, a Tokyo- based dealer at Shinkin Central Bank, the central institution for Japan’s financial cooperatives. “There’s talk that the pound is being bought on this view.” The euro was poised for a third weekly gain against the yen on optimism the economy in the 16-nation region is on the mend. The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 in the previous month, according to a Bloomberg News survey before the data release today. “Traders will be looking for signs the euro-zone economy is still recovering to remain comfortable with buying the single currency above $1.5000,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note today. Technical Charts The dollar was little changed versus the euro as the European currency’s 14-day relative strength index held at 69, near the 70 threshold that some traders use as a signal that prices have risen too quickly. “The recent bout of euro strength is now looking to be over-stretched, given huge accumulation of short positions on the dollar,” said Soichiro Mori, manager of foreign-exchange promotion at FXOnline Japan Co., a margin-trading company. “A rise in the euro beyond the $1.50 level may elicit a sterner warning from European policy makers against the appreciation of their currency.” In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. A short position is a bet an asset will decline. South Korea’s won was the biggest gainer against the greenback today amongst the 16 most-traded currencies as the nation’s expanding economy and improving corporate earnings helped draw funds from abroad. Fundamentals ‘Supportive’ “The fundamentals remain supportive of the stock market and the won,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “It seems that the global economy is on the mend and South Korea has been leading the turnaround in the region.” The won climbed 0.7 percent to 1,181.25 per dollar, according to data compiled by Bloomberg. The currency yesterday touched 1,192.75, the weakest level since Sept. 29. Investors are the most bullish on the yuan in 14 months as China’s exporters say the currency’s link to the slumping dollar is helping revive sales. Contracts based on expectations for the currency’s value a year from now show the yuan will appreciate 2.8 percent, compared with estimates for 0.5 percent two months ago, data compiled by Bloomberg show. Twelve-month non-deliverable forwards touched 6.5440 per dollar on Oct. 20, the strongest level since August 2008. They were at 6.6384 yesterday, compared with a spot exchange rate of 6.8274 today.

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