By Inyoung Hwang and Ben Levisohn Feb. 26 (Bloomberg) -- The dollar fell against the euro and the yen as German lawmakers said aid to Greece may come through a state-owned lender and sales of U.S. existing homes unexpectedly declined last month. The euro gained against the dollar as German officials said the nation is considering buying Greek bonds through state-owned lender KfW Group. The greenback depreciated against all of its 16 most-traded counterparts except the pound as home purchases dropped 7.2 percent last month, the second-largest decline ever. “This was the first specific bit of news that Europe will give some support financially to Greece,” said Fabian Eliasson, head of currency sales at Mizuho Corporate Bank Ltd. in New York. “There have been talks but no promises. The market was oversold in euros. Something like this comes out and people are reacting to the news.” The euro gained 0.6 percent to $1.3631 at 5 p.m. in New York, from $1.3548 yesterday, and rose 0.5 percent to 121.26 yen, from 120.69. The dollar fell 0.1 percent to 88.97 yen, from 89.07. For the month, the euro lost 1.7 percent against the dollar and 3.2 percent against the yen. KfW is preparing measures that are part of a European plan to grant Greece as much as 25 billion euros ($34 billion) in aid should the need arise, said four lawmakers, who spoke on the condition of anonymity because the information is confidential. KfW’s purchase of Greek bonds, backed by German government guarantees, would be an emergency measure as it risks inviting investors to speculate against other euro-region countries, the lawmakers said. No decisions have been taken yet, they said. ‘Credible Process’ “If Germany is leading this effort, that’s a more credible process from a markets perspective than if other smaller powers were leading it,” said Robert Lynch, head of currency strategy at HSBC Holdings Plc in New York. “There is a perception that if there is an EU effort to support Greece, Germany needs to lead that effort or it won’t take place.” Greece needs to raise 53 billion euros this year and faces more than 20 billion euros of bond redemptions by the end of May, according to data compiled by Bloomberg. Greece has the cash it needs until the middle of March, Prime Minister George Papandreou told the British Broadcasting Corp. on Feb. 21. The dollar earlier gained against the yen as the Commerce Department reported the economy expanded at a 5.9 percent annual rate in the fourth quarter, more than the 5.7 percent rise the government reported last month. ‘Mixed Bag’ “It’s been a mixed bag of data that’s putting the sustainability of the recovery into doubt,” said David Tien, a money manager in New York at Fischer Francis Trees & Watts, which manages $19 billion in assets. Brazil’s real has been the top performer against the dollar this month among the 16 major currencies, rising 4.8 percent. It has also been the best performer versus the yen. The pound had the sharpest decline against the dollar in February among the major currencies, falling 4.6 percent. The pound was headed toward its biggest weekly slide against the euro in five months as Bank of England policy makers signaled further measures may be needed to boost the U.K.’s ailing economy. “Right now, sterling is weakest out of the G-10” currencies, said Lane Newman, director of foreign exchange at ING Groep NV in New York. “Regardless of what the market thinks, reserve managers would rather hold euro over sterling. The U.K. arguably has bigger problems than the euro zone.” Weaker Pound The pound has depreciated 1.7 percent against the euro to 89.23 pence this week in the biggest drop since the five days ended Sept. 25. Sterling dropped 1.5 percent against the dollar, touching $1.5153 today, the weakest since May 18. The euro may fall to $1.2750 in coming months as the European Central Bank keeps its main refinancing rate at a record low longer than the Federal Reserve because of fiscal challenges faced by some member countries, according to Deutsche Bank AG. “The Fed should decisively out-hike the ECB this year,” Adam Boyton, a currency strategist at Deutsche Bank in New York, wrote in an e-mailed note. “And through this channel, we’d be inclined to expect another leg lower in the euro-dollar over coming months.” The ECB is expected to keep its refinancing rate at 1 percent after its monetary policy meeting next week, according to all 51 economists in a Bloomberg News survey. The Bank of England will also hold its bank rate at 0.5 percent, according to all 60 participants in a separate survey. To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Ben Levisohn in New York at blevisohn@bloomberg.net

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