ug. 13 (Bloomberg) -- The euro rose for a third day against the dollar before a European report that economists say will show the contraction in the 16-nation region slowed last quarter, adding to signs the global recession is abating. The euro also gained against the yen for a second day before a U.S. report forecast to show the number of Americans applying for jobless benefits dropped last week. South Korea’s won led Asian currencies higher as regional stocks gained after the Federal Reserve acknowledged the worst U.S. recession since the 1930s may be ending. “Evidence is pointing toward a bottoming out in the economy,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Interest rates may stay somewhat high in the euro zone. The euro will probably trade in a firm manner.” The euro strengthened to $1.4222 as of 1:08 p.m. in Tokyo from $1.4188 yesterday in New York. It rose to $1.4447 on Aug. 5, the highest level since Dec. 18. Europe’s currency bought 136.45 yen from 136.32 yen, and climbed to 86.19 British pence from 86.11 pence. The yen traded at 95.94 per dollar from 96.06. Emerging-market currencies strengthened as Asian stocks gained. The MSCI Asia-Pacific Index of regional shares rose 1.4 percent after the Standard & Poor’s 500 Index added 1.2 percent yesterday following the Fed’s policy statement. The won rose 0.7 percent to 1,238.05 per dollar, the Malaysian ringgit gained 0.4 percent to 3.5181, and Indonesia’s rupiah climbed 0.7 percent to 9,925. European Economy The euro gained for a fourth day versus the pound before the European Union’s statistics office releases its second-quarter gross domestic product today. The economy of the 16-nation euro area shrank 0.5 percent last quarter after contracting 2.5 percent in the previous three months, according to a Bloomberg News survey. “I expect growth in the euro-zone economy will be very high” later this year and that should benefit the euro, said Adam Carr, a Sydney-based senior economist at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. The euro may advance to $1.50 toward year-end, Carr said. The European economy may return to growth sooner than expected and inflation risks should not be underestimated, European Central Bank Executive Board member Juergen Stark said, according to a report in Boersen-Zeitung yesterday. Dollar Index The Dollar Index traded near a one-week low before a Labor Department report today economists say will show U.S. initial jobless claims dropped by 5,000 to 545,000 last week, according to another Bloomberg News survey. The Fed said in a statement after its two-day meeting yesterday that economic activity is “leveling out.” Policy makers also said they will wind down purchases of Treasuries that had been slated to end in September. The central bank has left its target rate for overnight lending between zero and 0.25 percent since December. “There may be upside risks to the U.S. economic outlook,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly traded bank. “Risk- taking appetite is returning and the bias is for the yen and the dollar to be sold.” The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners such as the euro, fell to 78.762 from 78.790 yesterday, when it dropped to 78.622, the weakest level since Aug. 7. Shanghai Index The won gained for the first time in five days against the dollar as demand for riskier assets increased and overseas investors bought more Korean shares than they sold. “The dollar’s going to remain a low-yielding currency for a period of time, and the Fed will do anything they can to nurture the economy,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “That combination’s a positive one for Asian currencies even if it’s not a surprise. The trend towards risk appetite is intact for the near-term.” Losses in the yen were tempered as falling stocks in China boosted demand for the currency as a refuge. The Shanghai Composite Index slid 0.4 percent on concern a slump in exports and new loans will hamper the country’s economic recovery. “A drop in Shanghai stocks is causing the yen to rise against the dollar, as investors see China’s equities as a regional economic gauge rather than the Nikkei 225,” said Satoshi Okagawa, head of the foreign-exchange forward trading group at Sumitomo Mitsui Banking Corp. in Tokyo. “China’s economic policies haven’t been working as intended in some areas.” The benchmark gauge plunged 4.7 percent yesterday after the government said its $4 trillion yuan ($585 billion) stimulus package can’t fully offset falling export demand.

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