The dollar weakened against the euro as Asian stocks gained even after China raised interest rates, curbing demand for the greenback as a refuge. The yen reversed an earlier advance against the euro as the MSCI Asia Pacific Index of regional shares rose 0.3 percent. Asian currencies halted advances as China’s rate increase damped the outlook for spending in the biggest export market for South Korea, Malaysia and Thailand. The Swiss franc rose against all but one of its 16 most active counterparts. “While U.S. economic data have been pushing up long-term yields, the dollar will continue to struggle until policy makers start talking about exit strategy,” said Tomohiro Nishida, a Tokyo-based foreign-currency dealer at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “When risk sentiment improves, the dollar is likely to be sold along with the yen.” The dollar weakened to $1.3150 per euro as of 8:08 a.m. in London, from $1.3122 last week. The yen was at 108.82 per euro, from 108.77. It earlier reached 108.43 per euro, the strongest since Dec. 1. The dollar fetched 82.75 yen, from 82.88 yen. The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners including the euro, yen and pound, slipped 0.2 percent to 80.314. The People’s Bank of China increased key one-year lending and deposit rates by 25 basis points on Christmas Day in its second move since mid-October. The change took effect yesterday. China’s benchmark lending rate rose to 5.81 percent, compared with 7.47 percent before cuts from late 2008 to counter the global financial crisis. It will climb to 6.56 percent by the end of next year, according to the median forecast in a Bloomberg News survey of economists this month. Rate Increase The deposit rate increased to 2.75 percent, compared with the 5.1 percent annual pace of inflation in November. China may raise rates as many as three times in the first half of next year, according to Morgan Stanley, while JPMorgan Chase & Co. forecasts two increases in that period. “You don’t expect rallies in the ringgit or Asian currencies for that matter,” said Vishnu Varathan, an economist at Capital Economics in Singapore. “The fact is the PBOC rate hike has been a long time coming. You were either betting on a very late hike this year or the moment the year turns.” The Bloomberg-JPMorgan Asia Dollar Index slipped 0.08 percent to 115.23, having ended last week at its highest closing level since Nov. 18. The Swiss franc appreciated 0.2 percent to 1.2606 per euro and strengthened 0.4 percent against the dollar to 95.86 centimes on speculation the Swiss central bank probably won’t renew efforts to halt the currency’s gains. Options traders are more bullish on the franc for the next three months than any major currency except the yen, according to data compiled by Bloomberg. Bank of Tokyo-Mitsubishi UFJ Ltd. says it may appreciate to 1.17 per euro in six months after rising more than any major peer since intervention ended in June. Standard Bank Plc estimates an advance to 1.20. To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles5@bloomberg.net.

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