Dec. 27 (Bloomberg) -- The yen rose against the New Zealand and Australian dollars as investors took refuge after China raised interest rates for the second time in just over two months to contain inflation. Japan’s currency strengthened against the kiwi and Aussie as China’s rate increase damped the outlook for spending in one of the biggest export markets for commodities from the two South Pacific countries. The Swiss franc was little changed against the euro after rising to a record high 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 to 61.95 against the New Zealand dollar at 8:43 a.m. in New York, from 62.09 on Dec. 24. Japan’s currency gained 0.3 percent to 83.04 versus the Australian dollar, from 83.27. The yen was little changed at 82.86 versus the greenback, compared with 82.88. The Swiss franc traded at 1.2637 versus the euro, compared with 1.2627, after touching 1.2439 on Dec. 22, the strongest level since the European currency began trading in 1999. 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 Lending Rate The 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. “The point from now on will be how aggressively the central bank of China will raise the rate,” said Hidetoshi Yanagihara, a senior currency trader at Mizuho Financial Group Inc. in New York. The franc strengthened to a record against the euro last week as investors sought safety from Europe’s sovereign-debt crisis. Swiss National 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.” Outlook for Franc 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 the franc 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. Investors are betting 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 SNB 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. --With assistance from Lukanyo Mnyanda in London and Liz Capo McCormick in New York. Editors: Dennis Fitzgerald, Paul Cox To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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