By Lukanyo Mnyanda Jan. 20 (Bloomberg) -- The dollar and the yen rose against their higher-yielding counterparts as steps by China to limit bank lending fueled concern that the global economic recovery will slow, boosting demand for the currencies as a haven. The dollar had its biggest gain in more than a month against the New Zealand dollar and traded at a five-month high versus the euro as the Shanghai Composite Index lost as much as 3 percent. The euro fell after International Monetary Fund Managing Director Dominique Strauss-Kahn said Greece’s budget difficulties are “serious” for the region. The pound snapped two days of gains against the dollar after Bank of England Governor Mervyn King said quickening inflation may not last. “We’ve got Shanghai down and we are seeing a safe-haven bid away from equities into the dollar,” said Kenneth Broux, a senior economist at Lloyds Banking Group Plc in London. “There’s euro weakness on the back of concerns about public finances and no help from the European Central Bank and European Union.” The dollar strengthened for a fifth day to $1.4187 per euro as of 8:36 a.m. in London from $1.4288 in New York yesterday, after earlier trading at $1.4167, the lowest level since Aug. 19. The yen traded at 128.96 per euro, from 130.22 yesterday. New Zealand’s dollar slid as much as 1.4 percent, the most since Dec. 17, to 72.54 U.S. cents before trading at 72.66 cents. Reduced Lending While China may report a 10.5 percent increase in fourth- quarter gross domestic product, investors say the government is taking steps to limit growth in what has been the engine of recovery from the global recession. The nation’s chief banking regulator, Liu Mingkang, said in an interview today that some banks were asked to reduce lending after a record 9.59 trillion yuan ($1.4 trillion) in new loans were made last year. Overseas investors are funneling money into Asian assets as the region leads a global recovery that’s being driven by interest-rate cuts and more than $2 trillion in government spending worldwide. Foreign direct investment in China more than doubled in December, while the MSCI Asia Pacific Index of shares advanced 49 percent over the past year. The dollar was also boosted today after Republican Scott Brown won a U.S. Senate seat in Massachusetts and vowed to stop health-care legislation in Congress, easing concern that the cost of the proposal would lead to bigger debt sales as the government finances a record budget deficit. ‘Sigh of Relief’ “There is a good chance that the bill will now be blocked and the market has heaved a huge sigh of relief that an additional $1 trillion or whatever the actual cost is won’t be spent,” said Neil Mellor, a currency strategist at BNY Mellon Corp. in London. “Anything now that limits the deficit spending is going to be well received by the market.” The euro dropped for a fifth day versus the dollar, the longest losing streak since the five days ending Aug. 10, after Strauss-Kahn said in an interview with Bloomberg Television in Hong Kong that Greece’s budget woes are “a serious problem.” Moody’s Investors Service said yesterday the success of the nation’s budget plan “cannot be taken for granted” and kept its debt rating at A2, the lowest of the 16 euro-area members. The single currency also approached the lowest level in more than nine years against the Australian dollar, weakening to 0.6479 before trading at 0.6442. “Greece’s debt problems look to be deep-rooted and they cannot be resolved immediately,” said Takeshi Makita, a Tokyo- based economist at Japan Research Institute Ltd., a unit of Japan’s third-largest banking group. “The euro will remain under selling pressure.” Kiwi Declines The New Zealand dollar declined against all 16 of its most- traded counterparts after the nation’s statistics department said consumer prices slipped 0.2 percent in the fourth quarter from the previous three months, damping the prospects for interests-rate increases. Reserve Bank of New Zealand Governor Alan Bollard, who predicted prices would fall, said last month he expects to keep the benchmark interest rate at 2.5 percent until the middle of this year to help the economy recover from a recession. “This suggests that the Reserve Bank has time up its sleeve to continue to monitor how the economy develops and they won’t be in any rush to bring forward the timing of the hiking cycle,” said Khoon Goh, a senior markets economist at ANZ National Bank Ltd. in Wellington. The currency is likely to find buyers toward 73.30 U.S. cents, he said. The pound slipped from the highest level in six weeks versus the dollar after Bank of England Governor Mervyn King said in a speech in Exeter, England, yesterday that the recent jump in consumer-price growth “should be temporary.” “The pound was pushed up by some temporary factors recently, but our view is that longer term it has structural weakness,” said Thio Chin Loo, a senior currency analyst in Singapore at BNP Paribas SA. The pound traded at $1.6270, from $1.6362 yesterday. It was little changed at 87.21 euros. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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