By Lukanyo Mnyanda Dec. 1 (Bloomberg) -- The dollar fell against high-yielding currencies after China’s manufacturing grew at the fastest pace in five years and Dubai said it’s in “constructive” talks with creditors, boosting stocks and paring demand for safety. The dollar also declined for a second day against the euro as the MSCI World Index of stocks jumped. Australia’s dollar rose against the U.S. currency after the central bank raised its benchmark interest rate for a third straight month. The yen fell against all 16 most-traded peers amid speculation policy makers will try to limit its gains even after keeping rates unchanged at an emergency meeting. “The risk trade is back on and people are selling the dollar,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International. “The feeling is that the glass is half full rather than half empty.” The dollar weakened to $1.5074 per euro as of 10:35 a.m. in London, from $1.5005 yesterday. The U.S. currency lost 1.9 percent versus the euro in November, its fifth consecutive monthly drop, the longest sequence of declines since December 2004. It climbed to 86.80 yen today, from 86.41 yen. Japan’s currency weakened to 130.87 per euro, from 129.64. Government-controlled Dubai World said it began talks with banks to restructure $26 billion of debt, including liabilities owed by units Nakheel World and Limitless World. The company is seeking to delay payments on less than half its $59 billion of obligations, easing concern a potential default may set back the global financial system’s recovery from the credit crisis. Stocks Climb European stocks rose, following gains in Asian equity markets, with the Dow Jones Stoxx 600 Index climbing 2 percent. U.S. stock-index futures also advanced. HSBC Holdings Plc’s purchasing managers’ index for China jumped to a seasonally adjusted 55.7 last month, the highest reading since the survey’s first month in April 2004. The government’s PMI, also released today, was at an 18-month high. The U.S. currency dropped the most against the New Zealand dollar before a report economists said will show manufacturing expanded in the U.S. German retail sales increased in October by more than analysts predicted, a separate report showed today. “Stock markets are on a strong footing and we should see the euro and other currencies gain against the dollar,” said Roberto Mialich, a senior currency strategist in Milan at UniCredit SpA, Italy’s largest bank. “The dollar doesn’t have significant room for appreciation at the moment.” The New Zealand dollar climbed 1.7 percent to 72.82 U.S. cents, adding to a 0.7 percent advance yesterday. It jumped 2.2 percent to 63.20 yen. Australia’s currency increased 0.8 percent to 92.34 U.S. cents and rose 1.3 percent to 80.14 yen. Rate Increase Reserve Bank of Australia, led by Governor Glenn Stevens, increased the overnight cash rate target to 3.75 percent from 3.5 percent, as forecast by 19 of 20 economists surveyed by Bloomberg News. The currency declined earlier after the central bank said the policy tightening so far may curb inflation, prompting speculation the pace of increases may slow. “Over the next couple of meetings there’s a pretty good chance they might actually pause and wait for the economic data before they tighten further,” Adarsh Sinha, a currency strategist at Barclays Capital in London, said in a Bloomberg Television interview. “They sounded a little bit dovish.” The fell the most against the New Zealand and Canadian dollars after the Bank of Japan said it will provide three-month loans to commercial banks at an interest rate of 0.1 percent as it seeks to address falling prices and a strengthening currency. Governor Masaaki Shirakawa and his board kept the key overnight lending rate at 0.1 percent by a unanimous vote after today’s emergency meeting. Deflation Prime Minister Yukio Hatoyama’s government has stepped up calls on the Bank of Japan to prop up growth after declaring on Nov. 20 the economy was in deflation. The central bank introduced quantitative easing steps in March 2001 before suspending them in March 2006. The yen has gained 4.5 percent against the dollar this year, reaching a 14-year high of 84.83 yen on Nov. 27, partly on speculation the government won’t take action to stem its gains. Finance Minister Hirohisa Fujii yesterday denied he ruled out action to prevent yen strength, after the Mainichi newspaper reported him telling reporters a day earlier that the government wouldn’t act. Eisuke Sakakibara, formerly Japan’s top currency official, said today that quantitative easing by the Bank of Japan wouldn’t be effective in reinvigorating the economy. ‘Limited Effectiveness” Such measures would be “better than nothing, but the effectiveness would be very limited because there are no borrowers,” Sakakibara, now an economics professor at Waseda University, said today in an interview with Bloomberg News in Tokyo. “Liquidity in Japan is already abundant.” Intervention in currency markets could weaken the yen for a two or three days “but it wouldn’t change the trend,” Sakakibara said. Japan hasn’t sold its currency since March 16, 2004, when it was at about 109 per dollar. The Bank of Japan, which carries out intervention measures on behalf of the Ministry of Finance, sold 14.8 trillion yen ($169 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the rate fell as low as 147.66. “What is clear is that something has changed, they are getting concerned about the strength of the yen,” said Paul Mackel, a director of currency strategy at HSBC in London. “They are saying there is no green light to buy the yen. It was only a few months ago that everybody thought this government was yen friendly.” The yen will depreciate to 100 per dollar at the end of the first quarter, Mackel said. The median of 41 strategists’ and analysts’ predictions compiled by Bloomberg is for the currency to trade at 90 yen by the end of March. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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