Dec. 27 (Bloomberg) -- The yen strengthened against the New Zealand and Australian dollars after China raised interest rates for the second time in just over two months, spurring concern that growth in Asia may slow. The yen snapped a two-day decline versus the New Zealand currency, known as the kiwi, and appreciated for the third time in the past four days against the Aussie as the rate increase damped the outlook for spending in one of the biggest export markets for commodities from the two countries. The euro gained against the dollar and the Japanese currency, while the Swiss franc fell against the euro after rising to a record last week. “There’s an element of risk aversion today in the market and that perhaps on the margin provided some support for the yen,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “The euro’s decline and the franc’s gains ahead of Christmas were very sharp, and I think what we are seeing today is just a correction of those big moves in a year-end thin market.” The yen appreciated 0.2 percent against the New Zealand dollar to 61.98 as of 6:42 a.m. in New York, and also gained 0.2 percent versus the Aussie, to 83.14. The Japanese currency was little changed at 82.82 per dollar, and weakened 0.2 percent to 109.01 against the euro. The euro climbed 0.3 percent to $1.3161, strengthening for the third consecutive day. The Swiss franc fell 0.3 percent against the 16-nation currency to 1.2662, and was little changed at 96.19 centimes per dollar. Dollar Index 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 80.281. The People’s Bank of China increased key one-year lending and deposit rates by 25 basis points on Dec. 25 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. 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.” Franc Strength The Bloomberg-JPMorgan Asia Dollar Index slipped 0.1 percent to 115.20, having ended last week at its highest closing level since Nov. 18. The franc strengthened to a record against the euro on Dec. 22 amid speculation that Swiss central bank President Philipp Hildebrand, who ended 15 months of intervening in foreign- exchange markets this year, may prove powerless to stop the currency from extending a record rally that he calls a “burden.” 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. Currency traders say Hildebrand probably won’t renew efforts to stop the gains after previous sales failed to halt the appreciation that made exports more expensive and saddled the Swiss National Bank with $22 billion of exchange-rate losses in the first nine months of 2010. While policy makers said on June 21 that intervention was no longer needed as the risk of deflation had ebbed, price increases have since slowed. --Editors: Daniel Tilles, Justin Carrigan To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; 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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