By Candice Zachariahs Nov. 24 (Bloomberg) -- The Australian and New Zealand dollars fell, after rising by the most in a week yesterday, as concern over the health of the banking sector damped demand for higher-yielding assets. The currencies also declined versus the yen as Frankfurter Allgemeine Zeitung reported that WestLB AG may require capital injections with its majority stakeholders prepared to let it become insolvent. The need for European banks to strengthen balance sheets may restrict economic recovery by limiting funds for small companies and households, Standard & Poor’s said in a report yesterday. “The WestLB story may weigh on euro and that will weigh on the Aussie and kiwi,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase & Co. in Sydney. “We won’t dip too far from here, maybe toward 91.80 on the Aussie and 72.60 cents on the kiwi.” Australia’s currency fell 0.2 percent to 92.21 U.S. cents as of 4:16 p.m. in Sydney from 92.39 cents in New York yesterday. The currency declined 0.3 percent to 81.92 yen. New Zealand’s dollar weakened 0.4 percent to 72.98 U.S. cents from 73.26 in New York yesterday and bought 64.85 yen. Two German regional savings bank groups that hold a majority stake in state-owned WestLB are prepared to let the Dusseldorf-based lender become insolvent, Frankfurter Allgemeine Zeitung reported, citing an unidentified banking industry person. The South Pacific nations’ currencies also were lower as the MSCI Asia Pacific Index fell 0.6 percent. Fed Minutes Losses in the currencies may be limited before the Federal Reserve publishes minutes from its November meeting when it specified for the first time that rates will stay unchanged as long as inflation expectations are stable and joblessness fails to decline. Charles Evans, president of the Federal Reserve Bank of Chicago, told the Financial Times yesterday that U.S. interest rates may stay near zero until “late 2010, perhaps later in terms of 2011.” “The FOMC minutes tonight will reiterate the line on keeping rates low for a long time,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp., Australia’s second-biggest lender. “That could see another push higher in risk appetite.” The Australian dollar will likely trade between 91.80 and 92.80 cents, while New Zealand’s currency will move between 72.50 cents and 73.70 cents, Speizer said. Rates, Bonds Benchmark interest rates are 3.5 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., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Australian government bonds rose for a fourth day. The yield on 10-year notes fell six basis points, or 0.06 percentage point, to 5.36 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.432, or A$4.32 per A$1,000 face amount, to 99.180. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.41 percent. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

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