Dec. 15 (Bloomberg) -- The dollar rose against the yen and euro for a second day before data forecast to show growth in U.S. industrial production, backing Federal Reserve comments yesterday that the world’s largest economy continues to recover. The greenback rose against all of its 16 major counterparts as Treasury yields reached a seven-month high after the Fed maintained a $600 billion program of debt purchasing. Movement in the yen was limited after a report showed confidence among Japan’s largest manufacturers worsened by less than economists estimated. South Korea’s won fell on concern authorities may step up measures to curb capital inflows. “The dollar will enjoy steady support in the short term based on the economic outlook,” said Daisaku Ueno, president of Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The market is done with the dollar sell-off due to quantitative easing for now.” The U.S. currency rose to 83.85 yen as of 2:50 p.m. in Tokyo from 83.66 yen in New York yesterday, when it gained 0.3 percent. The greenback advanced to $1.3346 per euro from $1.3378. The yen was little changed at 111.91 per euro from 111.92. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, gained 0.2 percent to 79.587 today, advancing for a second day. U.S. factory production rose 0.3 percent in November, according to the median estimate of economists in a Bloomberg News survey before the Fed releases the data today. U.S. retail sales increased 0.8 percent last month, the Commerce Department said yesterday. Seven-Month High Treasury 10-year yields climbed to as high as 3.50 percent today, the highest since May 14, before retreating to 3.45 percent. They rose as much as 22 basis points yesterday. Interest-rate futures contracts on the Chicago Board of Trade yesterday showed a 12 percent chance U.S. policy makers will increase the target lending rate to 0.5 percent by March. The probability was zero the day prior. The key U.S. rate has been at a range of zero to 0.25 percent since December 2008. The Fed’s Treasury purchases are aimed at boosting a recovery that has been “disappointingly slow” and keeping prices stable “over time,” the Federal Open Market Committee said in a statement yesterday in Washington. Demand for the dollar was limited before a report tomorrow forecast to show U.S. initial jobless claims rose last week, adding to signs the labor market will take time to recover. Jobless Claims Rising “The Fed has yet to achieve its mandate of recreating jobs,” said Susumu Kato, chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA. “People don’t have enough reasons to keep buying the dollar from here.” Applications for jobless benefits rose to 425,000 last week from 421,000 the previous week, according to the median estimate of economists in a Bloomberg News survey. The Bank of Japan’s quarterly Tankan index of sentiment at large manufacturers dropped to 5 in December from 8 in September, the Bank of Japan said in Tokyo today. That’s the first deterioration since the end of the global financial crisis last year. The median estimate of 20 economists surveyed by Bloomberg News was for a reading of 3. A positive number means optimists outnumber pessimists. ‘Lull-like Condition’ “The economy has entered a lull-like condition,” Ryutaro Kono, chief economist at BNP Paribas in Tokyo, said before the report. “The mood in the manufacturing sector has been undermined by slowing exports and the end of stimulus programs, with yen appreciation being just a secondary factor.” The large manufacturers said they expect the yen to average 86.47 per dollar in the year through March, compared with the 89.66 forecast in September, according to the Tankan survey. The yen has advanced 10 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The euro has dropped 9.3 percent, and the dollar is down 2 percent. The won was the biggest loser against the greenback among major currencies on prospects South Korea’s National Assembly will revive taxes on foreign investors’ bond holdings. The parliament’s finance committee on Dec. 7 supported a bill that would tax interest income from treasury and central bank bonds by as much as 14 percent and put a 20 percent levy on capital gains from their sale. “In the case of Korea, there is some talk the Ministry of Finance might be putting in some tax or levy,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. The won slid 1.1 percent to 1,153.55 per dollar. --With assistance from Keiko Ujikane in Tokyo and Lilian Karunungan in Singapore. Editors: Jonathan Annells, Nate Hosoda To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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