By Ben Levisohn and Matthew Brown Dec. 29 (Bloomberg) -- The dollar fell against higher- yielding currencies including the Australian dollar and South African rand as stock markets advanced on signs the global economic recovery is strengthening. The U.S. currency traded at almost a two-month high against the yen on bets the Federal Reserve will start withdrawing emergency stimulus measures. The drop in U.S. house prices probably eased further in October, and consumer confidence climbed this month, separate reports are forecast to show today. “I would expect the negative correlation between the dollar and Dow to be the prevailing trend until the Fed begins normalizing interest rates in the spring,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank. “That will eviscerate the carry trade, and the dollar will strengthen on a cyclical basis.” The Australian dollar climbed 1.3 percent to 89.85 U.S. cents at 8:30 a.m. in New York, and the rand strengthened 1.4 percent to 7.4088 against the U.S. currency. The dollar traded at 91.76 yen, compared with 91.63. The greenback rose to 91.87 yen on Dec. 22, the strongest level since Oct. 27. The dollar depreciated 0.4 percent to $1.4435 per euro, from $1.4378. The euro climbed 0.5 percent to 132.46 yen, from 131.76 yen. The MSCI World Index of shares increased 0.2 percent, following yesterday’s 0.4 percent increase. The rand and the Aussie, currencies that often trade in the same direction as commodities, advanced as copper rallied to a 15-month high, extending its 2009 gain to 136 percent, the best year since at least 1986. Dollar Versus Euro The dollar has appreciated 4 percent versus the euro this month, trimming its 2009 decline to 3.2 percent. The greenback has fallen 30 percent against the euro this decade. Futures trading in Chicago showed a 60 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, up from 48 percent odds a week ago. The central bank has proposed a program to sell term deposits to banks to absorb some of the banking system’s $1 trillion in excess reserves now threatening to accelerate inflation as the economy recovers. The plan, subject to a 30-day comment period, “has no implications for monetary policy decisions in the near term,” the Fed said yesterday. “Market consensus is that the Fed is close to an exit,” while the Bank of Japan is far from it, said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust & Banking Co., a unit of Japan’s largest brokerage. “As a result, the dollar-yen is seeing buying interest.” U.S. Sentiment The New York-based Conference Board’s consumer confidence index rose to 53 this month from 49.5 in November, according to the median estimate of economists in a Bloomberg survey. Property values in 20 metropolitan areas in the U.S. fell 7.2 percent in October from a year earlier, the smallest drop since 2007, according to the median forecast in a separate Bloomberg survey before the S&P/Case-Shiller report. Ten-year U.S. yields reached 3.85 percent yesterday, the highest level since Aug. 10. The Treasury’s sale of $44 billion in two-year notes yesterday drew a yield of 1.089 percent, the highest level since August. The Treasury plans to sell $42 billion of five-year notes today and $32 billion of seven-year debt tomorrow. The yield premium of 10-year Treasury notes over similar- maturity Japanese bonds reached 2.54 percentage points today, the highest level in two years based on closing prices, increasing returns on dollar-denominated assets. Equities and Dollar Barton Biggs and Marc Faber, who recommended buying stocks in March when investors were dumping them, are again united as they predict gains for U.S. equities and the dollar. Shares in the largest equity market and the U.S. currency may add 10 percent as economies improve around the world, Biggs of the New York-based hedge-fund firm Traxis Partners LP said yesterday in a Bloomberg Television interview. Faber, publisher of the “Gloom Boom & Doom” newsletter, told Bloomberg TV that the dollar may rise 5 percent to 10 percent against the euro while stocks gain, reversing an inverse relationship that existed from March to November. The Swiss franc appreciated as much as 0.2 percent to 1.4853 per euro. The currency reached 1.4850 last week, the strongest level since March 12, when the Swiss National Bank bought foreign currency to stimulate the economy and ward off deflation. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net

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