By Yoshiaki Nohara and Katrina Nicholas Dec. 17 (Bloomberg) -- The dollar strengthened, climbing to a three-month high against the euro after the Federal Reserve said the U.S. economy is improving. Asian stocks and U.S. index futures declined on expectations that central banks will begin to raise interest rates next year. The U.S. currency gained against 15 out of 16 of its most- traded counterparts, advancing 0.97 percent against the euro and 0.42 percent versus the yen as of 2:15 p.m. in Tokyo. The euro fell against most currencies after Standard & Poor’s cut Greece’s credit rating. The MSCI Asia Pacific Index dropped 0.7 percent while futures on the Standard & Poor’s 500 Index lost 0.27 percent. The MSCI World Index fell 0.5 percent to 1,159.68. While repeating its pledge to keep interest rates “exceptionally low” for an extended period, policy makers said employment and consumer spending trends show the economy is strengthening. The Fed also said that most of its special liquidity facilities will expire on Feb. 1, 2010, raising investor expectations that the central bank will increase the target rate for overnight loans between banks from the current range of zero to 0.25 percent. “The Fed’s statement indicated jobs data won’t get worse from now on, providing some level of confidence for the U.S. dollar,” said Susumu Kato, chief economist at Calyon Securities in Tokyo. “With these downgrades in Europe coming out, emerging markets are more susceptible than developed ones to risk factors,” reflecting a drop in Asian stocks. The dollar climbed to as high as $1.4536 against the euro, the strongest since Sept. 8, and to 90.26 yen after the Fed meeting. Euro Weakens Europe’s single currency weakened for a third day after S&P joined Fitch Ratings in downgrading Greece, which has the widest budget deficit in the European Union. S&P lowered the ranking by one level to BBB+ from A-, matching Fitch’s cut on Dec. 8. Greek Prime Minister George Papandreou pledged two days ago to provide “radical” measures to fix the budget. Financial stocks led Asian shares lower. The MSCI Asia Pacific Index dropped 0.6 percent to 118.89 as of 12:40 p.m. in Tokyo, erasing a 0.1 percent advance. Westpac Banking Corp. dropped 1.6 percent in Sydney and China Overseas Land & Investment Ltd. lost 2 percent in Hong Kong. The Hang Seng Index fell 0.9 percent after the Hong Kong Monetary Authority cited the risk of “sharp corrections” in asset prices following this year’s 49 percent rally. An outflow of funds may bring “volatilities in the real economy,” the central bank said in a report today. Korean Banks South Korean banks fell for a second day after the financial regulator said yesterday it will limit loan-to-deposit ratios to curb excessive lending.. KB Financial Group Inc. declined 1.1 percent, while Korea Exchange Bank lost 1 percent. The Kospi index dropped 0.3 percent. The won fell 0.5 percent to 1,170.75 in Seoul, according to data compiled by Bloomberg. It earlier touched 1,171.55, the weakest level since Nov. 27, overseas investors sold $40.7 million more Korean shares than they bought yesterday. They’ve pumped almost $24 billion into local equities this year, contributing to a 7.6 percent advance in the won. Treasuries rose, pushing 10-year notes to their biggest gain in more than a week. Ten-year note yields fell two basis points to 3.58 percent, according to data compiled by Bloomberg. The 3.375 percent security due in November 2019 rose 1/8, or $1.25 per $1,000 face amount, to 98 9/32. Asia Leading Asia is leading the world’s emergence from its deepest recession since the 1930s after governments boosted spending, cut taxes and slashed interest rates. China, South Korea, Taiwan, Hong Kong and 10 Southeast Asia economies may expand 6.8 percent in 2010 from 4.2 percent this year as the global recovery spurs demand for the region’s goods, the Asian Development Bank said on Dec. 15. Markit Group Ltd.’s iTraxx indexes of Asia-Pacific credit- default swaps fell, signaling declining concern about the ability of companies and governments to pay their bonds and loans. The London-based data provider’s risk benchmarks for Asia, Japan and Australia debt last fell together on Dec. 14, according to CMA DataVision prices in New York. That’s when Dubai said it got $10 billion in aid from Abu Dhabi to help state-owned Dubai World meet obligations. Futures on the Standard & Poor’s 500 Index fell 0.3 percent. In New York yesterday, the gauge added 0.1 percent. “Deterioration in the labor market is abating,” the Federal Open Market Committee said after meeting in Washington. “Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.” Metals Fall Gold for immediate delivery reversed gains, dropping as much as 0.7 percent to $1,129.68 an ounce as the dollar strengthened to a three-month high against the euro. The metal traded at $1,131.10 in Asia. Earlier it climbed as much as 0.4 percent. Copper for delivery in three months on the London Metal Exchange tumbled as much as 1 percent to $6,970.25 a metric ton before trading at $6,985. Oil fell in New York as the dollar strengthened against the euro, paring gains made yesterday after a government report showed a decline in fuel supplies in the U.S. Crude oil for January delivery declined as much as 50 cents, or 0.7 percent, to $72.16 a barrel in electronic trading on the New York Mercantile Exchange. It was at $72.28 a barrel in Asia.

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