By Anchalee Worrachate and Yoshiaki Nohara Feb. 22 (Bloomberg) -- The dollar weakened against the New Zealand and South Korean currencies as a stock-market rally damped demand for lower-yielding assets. The dollar also dropped against the yen on speculation a stagnant U.S. job market will keep Federal Reserve Chairman Ben S. Bernanke from raising the central bank’s key interest rate. The MSCI World Index of shares climbed 0.7 percent, while the MSCI Asia Pacific Index gained 2.4 percent. The euro declined against 11 of its 16 most actively traded counterparts. “Risk appetite seems to have improved,” said Adam Cole, head of currency strategy at Royal Bank of Canada in London. “Stocks and higher-yielding assets are well-supported and that reduces demand for safe-haven currencies.” The dollar slipped to 70.11 U.S. cents per New Zealand dollar as of 10.50 a.m. in London, from 69.95 cents on Feb. 19. The U.S. currency declined to 1147.4 won from 1160.5 at the end of last week and was at 91.25 yen from 91.52 yen. Benchmark interest rates of 3.75 percent in Australia and 2.5 percent in New Zealand compare with as low as zero in the U.S. and 0.1 percent in Japan, making the South Pacific nations’ assets attractive to investors seeking higher returns. Bernanke may tell Congress Feb. 24 that last week’s increase in the discount rate isn’t intended to drive up borrowing costs. Fed officials last month forecast growth of 2.8 percent to 3.5 percent this year, and minutes of their January meeting showed they are seeking more evidence the recovery is sustainable. Fed Bank of San Francisco President Janet Yellen is scheduled to speak today on the economy. ‘Dovish Comments’ “We are seeing more dovish comments to counterbalance the discount rate hike, and I expect Bernanke to mention the ‘extended period’ language again,” said Greg Gibbs, a currency strategist with Royal Bank of Scotland Group Plc in Sydney. “The dollar is going to be softer than it’s been over the recent weeks.” The Dollar Index, which tracks the currency against those of six major U.S. trading partners including the euro, yen and pound, dropped for the first time in four days, falling 0.1 percent to 80.565. Sales of new U.S. homes rose 3.8 percent in January, following a 7.6 percent decline in December, according to the median forecast in a Bloomberg News survey of economists before the Commerce Department report on Feb. 24. Bookings for goods meant to last several years rose 1.5 percent last month, a separate survey showed before the data’s release on Feb. 25. Greek Crisis The euro fell on speculation that the debt crisis among the euro-area’s smaller nations will slow the region’s economic recovery, forcing the European Central Bank to keep its main refinancing rate at a record low. It traded at $1.3601, from $1.3613 yesterday. Derivatives traders are signaling that the euro’s slump, which has driven it to a nine-month low against the dollar, will continue even if European Union leaders bail out Greece. Short-term rates for borrowing in euros in the forwards market are the cheapest relative to loans in dollars since September. The 50 percent collapse in that spread this month signals investors are betting the European Central Bank will keep its benchmark at a record low, sacrificing euro strength to prevent deficit-cutting by debt-laden economies in the region from stymieing growth. “Investors have already started to think about the next likely phase of the present crisis, and it appears that they all are finding are new reasons to sell the euro,” said David Woo, global head of foreign-exchange strategy at Barclays Plc in London. “Aggressive fiscal tightening by Greece, Spain and Portugal is likely to plunge their economies back into recession. All else being equal, this calls for a looser monetary policy.” A report tomorrow from the Munich-based Ifo institute is expected to show German business confidence rose to 96.1 this month from 95.8 in January, according to the median estimate of economists in a Bloomberg News survey. To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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