By Lucy Meakin and Monami Yui Feb. 16 (Bloomberg) -- The yen and dollar weakened versus most of their major counterparts before reports that economists said will show U.S. factory output rose and European consumer confidence increased, damping demand for safer assets. The yen reached a two-week low versus the euro as stocks rose on optimism that the global recovery is gaining momentum. Australia’s dollar pared its gains after Moody’s Investors Service said it may cut credit ratings on the nation’s biggest banks. The pound slid after Bank of England Governor Mervyn King said inflation will peak this year and ease in 2012. “Confidence in the global economy is certainly improving, and that’s resulting in safe-haven currencies such as the yen and dollar weakening,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. The yen declined 0.1 percent to 113.15 per euro at 10:40 a.m. in London. It earlier fell to 113.54 yen, the weakest level since Jan. 28. The dollar dropped 0.3 percent to $1.3530. The yen slipped 0.2 percent to 83.64 per dollar from 83.77. U.S. industrial production gained 0.5 percent in January from December, rising for a third month, according to a Bloomberg survey before today’s Federal Reserve report. An index of consumer sentiment in the 17-nation euro area improved to minus 11 this month from minus 11.2 in January, a separate survey showed before the figures are released tomorrow. An index of German investor confidence rose for a fourth month in February, the ZEW Center for European Economic Research said yesterday. The measure of investor and analyst expectations aims to predict developments six months in advance. Stocks Gain The yen weakened against 12 of its 16 major counterparts as the MSCI Asia Pacific Index of shares advanced 0.4 percent and the European Stoxx 600 gained 0.4 percent. Japan’s currency has fallen 3.6 percent this year, based on Bloomberg Correlation- Weighted Indexes. The euro has risen 1.1 percent and the dollar is down 0.2 percent. The pound slid 0.3 percent to $1.6085 and extended its decline against the euro to 0.6 percent. The Bank of England today said its central forecast is for inflation to peak at about 4.4 percent this year before easing to the 2 percent goal by the middle of 2012, and undershooting the target by the end of the forecast period. Sterling is still up 3 percent against the dollar this year as accelerating inflation has spurred speculation policy makers will be forced to raise borrowing costs. A U.K. report yesterday showed consumer prices rose an annual 4 percent last month, the fastest since November 2008 and twice the Bank of England’s 2 percent target. Data today showed British unemployment claims unexpectedly rose in January. Australian Banks The Australian dollar was up 0.3 percent to 99.95 U.S. cents, after appreciating above parity to $1.0018. It yesterday fell to 99.44 cents, the weakest level since Jan. 31. The New Zealand dollar was at 75.43 U.S. cents from 75.19 cents, after climbing to 75.63 cents. The currencies pared their gains after Moody said its concern about lenders’ access to foreign funding may result to downgrades for major banks in both Australia and New Zealand, including Westpac Banking Corp., National Australia Bank Ltd. and ANZ National Bank Ltd. An Australian index of leading indicators increased in December as the economy expanded before flooding struck the nation’s northeast. The index, a gauge of future growth, rose 0.8 percent from a month earlier, Westpac and the Melbourne Institute said. The index grew at an annual rate of 4.2 percent in December, accelerating from 3.6 percent in November. “There will be some resistance above parity, but the Aussie is still a buy-on-dips at the moment,” said Jim Vrondas, a manager at online foreign-exchange dealer OzForex Ltd. in Sydney. “The Reserve Bank of Australia expects growth to improve and the inflation effects of the Queensland floods will feed through in the second half of the year.” --With assistance from Candice Zachariahs in Sydney, Andrea Wong in Taipei and Ronnie Harui in Singapore. Editors: Keith Campbell, Matthew Brown. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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