By Yasuhiko Seki and Ron Harui (Corrects second paragraph to say loss.) Feb. 2 (Bloomberg) -- The dollar traded near the strongest level in almost seven months against the euro amid concern Greece will struggle to reduce its public deficit, reducing demand for European assets. The euro resumed its downturn, after snapping a four-day loss yesterday, before the European Union issues a review of Greece’s budget-cutting plans tomorrow. The Australian dollar fell to a six-week low after the central bank unexpectedly left its benchmark interest rates unchanged at a meeting today, ending a record stretch of three-straight increases. “European policy makers seem to be worried that Greece’s problems may spread,” said Yuji Saito, director of the foreign- exchange department in Tokyo at Calyon Bank, a unit of France’s Credit Agricole SA. “This is putting a brake on any gains in the euro.” The dollar traded at $1.3935 per euro as of 6:57 a.m. in London from $1.3931 in New York yesterday when it rose to $1.3853, the strongest level since July 8. The U.S. currency was at 90.78 yen from 90.61 yen. The yen traded at 126.38 per euro from 126.24 yesterday when it rose to 124.43, the highest level since April 28. Australia’s currency dropped 1.3 percent to 88.00 U.S. cents after earlier sliding to 87.82 cents, the weakest level since Dec. 23. It declined 1.1 percent to 79.90 yen. EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in an interview yesterday that Greece’s deficit program is “very ambitious and will need to be implemented under difficult circumstances.” Extra Yield The extra yield investors demand to hold Greek 10-year bonds instead of benchmark German bunds widened to almost 4 percentage points last week, the most since the year before the euro’s debut in 1999. “Greece’s debt problem looks to be deep-rooted,” said Tadashi Matsukawa, a manager of the fixed-income division at PineBridge Investments Japan Co. “This is likely to continue to keep a lid on prospects about the euro.” The Australian dollar fell against all 16 of its most- traded counterparts after Reserve Bank Governor Glenn Stevens left the overnight cash rate target at 3.75 percent. All 20 economists surveyed by Bloomberg forecast a quarter-point increase. Traders had put the odds of an increase at 74 percent, according to contracts traded on the Sydney Futures Exchange. “The RBA’s decision certainly came as a surprise,” said Koichi Kurose, chief strategist in Tokyo at Resona Bank Ltd., a unit of Japan’s fourth-largest banking group. “The move also signals that a global recovery may be patchy and requires careful policy moves ahead.” Stevens became the first central banker among the Group of 20 nations to raise borrowing costs last year, boosting them three times. Top Performer Officials in the U.S., the U.K. and Europe have kept their benchmark rates at historic lows. The spread helped make the Australian dollar the top performer versus its U.S. counterpart since the start of September among the most-traded currencies. The yen weakened against higher-yielding currencies amid speculation U.S. lawmakers will dilute proposed curbs on the size and risk-taking by banks. Richard Shelby, the ranking Republican on the Senate Banking Committee, said yesterday through a spokesman that a proposal by the Obama administration to restrict proprietary trading by banks should be examined by lawmakers. The proposal may be either significantly modified or dropped, DealReporter said, citing unidentified lawmakers and staffers. DealReporter is part of the Financial Times Group. ‘Drastic Modification’ “A drastic modification of this plan, if achieved, may halt the unwinding of positions in higher-yielding assets and revive some flow back into them,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc. “Stocks, in particular, may benefit.” The MSCI Asia Pacific Index of shares rose 0.9 percent and the Nikkei 225 Stock Average closed up 1.6 percent. The yen fell for a third day against the dollar after the Financial Times reported Japanese Financial Services Minister Shizuka Kamei is urging Japan Post Bank Co., the government- owned lender, to diversify its investments into Treasuries and corporate bonds. Almost 80 percent of Japan Post Bank’s funds go toward buying domestic government bonds, according to the Financial Times, which reported Kamei’s remarks. “If a portion of its assets is actually being floated and reinvested outside Japan, it will weaken the yen,” said Kazutoshi Yasuda, general manager of the markets department in Tokyo at FX Prime Corp., a foreign-exchange unit of Japanese trading house Itochu Corp. Japan Post had 195.7 trillion yen of assets as of Dec. 31, equivalent to $2.15 trillion, based on figures from the company’s Web site. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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