By Yoshiaki Nohara Dec. 23 (Bloomberg) -- The dollar traded near the highest in more than three months versus the euro before a report forecast to show new home sales rose in the U.S., adding to signs of recovery in the world’s largest economy. The dollar was near an eight-week high against the yen as the yield on U.S. 10-year notes rose, boosting the advantage of holding Treasuries instead of Japanese debt to the widest margin in more than a year. The yen rebounded against major counterparts amid speculation Japanese exporters are bringing home overseas earnings before the year-end. “The U.S. dollar continues to benefit from stronger data,” said Robert Rennie, head of currency research in Sydney at Westpac Banking Corp. “That is a trend we generally expect to continue.” The dollar traded at $1.4251 versus the euro as of 1:29 p.m. in Tokyo from $1.4249 in New York yesterday, when it touched $1.4218, the highest since Sept. 4. The dollar fetched 91.65 yen from 91.83 yen. It earlier reached 91.87 yen, the strongest since Oct. 27. The yen was at 130.62 per euro from 130.86. Japan’s markets are closed today for a public holiday. Sales of new homes in the U.S. probably rose to a 438,000 annual pace in November from 430,000 in October, according to the median estimate of economists in a Bloomberg News survey. The Commerce Department will release the data today. Purchases of U.S. existing homes increased 7.4 percent in November to a 6.54 million annual rate, the highest since February 2007, the National Association of Realtors said yesterday. The median estimate of 69 economists in a Bloomberg survey was for a 2.5 percent advance. U.S. Data “The U.S. economy is chugging along in its recovery mode, punching out some decent figures,” said Greg Gibbs, a strategist at Royal Bank of Scotland Group Plc in Sydney. “Markets are re-rating some of the major currencies, particularly the euro and yen. The dollar has more to offer from these levels than those currencies do, considering the problems surrounding the periphery in Europe.” Greece’s government debt rating was cut yesterday one step to A2 from A1 by Moody’s Investors Service, a smaller reduction than some strategists expected. Moody’s kept a negative outlook on the rating. The difference between 10-year Treasury yields and the same maturity Japanese government bonds widened to 2.49 percentage points yesterday, the highest level since October 2008. Bank of Japan The yen pared losses against the dollar today on speculation investors are closing long positions on the dollar- yen before the Christmas holiday. A long position is a bet that the price of an asset will rise. “All we hear is some intra-day profit taking” on dollar- yen long positions, said Phil Burke, chief dealer for global foreign exchange and rates at JPMorgan Chase & Co. in Sydney. “Liquidity is not there, so you are actually getting a lot more moves than you normally should get.” Bank of Japan Governor Masaaki Shirakawa said in an interview with TV Tokyo on Dec. 21 in Tokyo that the central bank will “persistently” keep interest rates at “virtually zero” to fight deflation. “The yen gains at times as exporters take advantage of higher levels of the dollar-yen to bring home profits,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest bank. “Shirakawa’s reiteration to keep rates low seems to be helping the yen weaken, as solid U.S. data boost demand for the dollar.” Technical Indicators Shirakawa is scheduled to speak at an annual meeting of Keidanren, Japan’s biggest business lobby, tomorrow in Tokyo. Consumer prices, excluding fresh food, in Japan probably fell 1.7 percent in November from a year earlier, according to the median estimate of economists in a Bloomberg News survey before the statistics bureau releases the data on Dec. 25 in Tokyo. That would be the ninth-straight decline. Gains in the dollar were limited as the 14-day relative strength index, or RSI, for the currency against the euro has remained below 30 since Dec. 17, a sign the dollar is likely to fall after rising too fast. The index was at 25.04 today. “Technical indicators show the dollar’s rise has been rapid, as investors unwind numerous dollar-short positions before Christmas,” said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. “I’m guessing the market will switch back to a dollar-weakening trend early next year.” To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

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