By Theresa Barraclough and Garfield Reynolds Feb. 26 (Bloomberg) -- The Australian dollar climbed versus the yen as an increase in bank lending added to the case for the South Pacific nation’s policy makers to raise borrowing costs next week. The so-called Aussie headed for the first monthly gain against the U.S. currency since November as reports this week showed lending rose in January and business investment rebounded in the fourth quarter. New Zealand’s dollar headed for a second monthly decline as a government report showed home-building approvals fell for a second month in January. “Data out of Australia justifies a rate hike next week,” said Masafumi Yamamoto, chief foreign-exchange strategist in Tokyo at Barclays Plc, Britain’s second-largest bank. “The Australian dollar will gain versus the dollar and the yen.” Australia’s currency advanced to 79.43 yen as of 4:33 p.m. in Sydney, from 79.13 yen yesterday in New York. The currency traded at 88.98 U.S. cents from 88.83 cents yesterday and 88.38 cents on Jan. 29. New Zealand’s dollar rose to 61.97 yen from 61.63 yen yesterday. It traded at 69.42 U.S. cents from 69.18 cents yesterday and 70.10 cents on Jan. 29. Bank Lending Loans provided by banks and other finance companies gained 0.4 percent in January, after rising 0.3 percent the prior month, the Reserve Bank of Australia said in Sydney today. Capital spending advanced 5.5 percent from the previous quarter, when it fell a revised 5.2 percent, the Bureau of Statistics said in Sydney yesterday. “Australia’s strong economic fundamentals are irrefutable,” Annette Beacher, senior strategist at TD Securities Inc. in Singapore, wrote in a research report. “We believe the RBA’s finely balanced judgment will tip the decision toward a 25 basis point hike next week.” The Aussie may climb to 90 U.S. cents by the end of March and 95 cents by June-end, according to TD Securities forecasts. Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. Greek Concern The Australian dollar headed for a weekly decline versus the greenback as concern Greece’s credit ratings will be cut trimmed demand for riskier assets. Standard & Poor’s and Moody’s Investors Service said they may cut their ratings if Greece fails to implement a plan to reduce its budget deficit. “The Australian dollar remains hostage to investor risk- appetite, which will continue to be under pressure while sovereign debt default concerns worsen and economic reports in the major economies disappoint,” John Kyriakopoulos, head of currency strategy at National Australia Bank in Sydney, wrote in a note to clients. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to rate expectations, slid to 4.14 percent from 4.22 percent a week earlier. Australian government bonds gained for a third day. The yield on the benchmark 10-year note fell six basis points to 5.43 percent, according to data compiled by Bloomberg. The 5.25 percent security due March 2019 advanced 0.39, or A$3.90 per A$1,000 face amount, to 98.71. --With assistance from Yoshiaki Nohara in Tokyo. Editors: Garfield Reynolds, Nate Hosoda To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Garfield Reynolds in Sydney at +612-9777-8695 greynolds1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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