By Ron Harui Nov. 3 (Bloomberg) -- The euro rose for a second day against the yen on renewed optimism the global economy is recovering, encouraging investors to buy higher-yielding assets. The yen weakened versus 15 of its 16 major counterparts before a U.S. report that economists said will show factory orders rebounded in September, damping demand for the relative safety of Japan’s currency. The dollar fell on speculation the Federal Reserve will this week keep interest rates near zero and refrain from signaling a withdrawal of stimulus measures. Australia’s dollar trimmed gains after the central bank raised borrowing costs by 0.25 percentage point as analysts expected. “Risk-taking appetite is returning, given that economies are improving,” said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. “The yen is being sold.” The euro climbed to 133.51 yen as of 12:42 p.m. in Tokyo from 133.32 yen in New York yesterday, when it strengthened 0.5 percent. The dollar fetched at $1.4785 per euro from $1.4775. Japan’s currency bought 90.31 versus the dollar from 90.21. Foreign-exchange movements may be more volatile than usual in Asia today as Japan has a national holiday, Yoshida said. Fed Statement The dollar weakened versus 12 of the 16 major currencies before the Fed releases its monetary policy statement tomorrow at the conclusion of its policy meeting. The central bank has retained a commitment to keep interest rates near zero for an “extended period.” The U.S. banking system is still “far from robust,” hurt by a decline in commercial real-estate values and threatened by rising prospects for defaults on such loans, Jon Greenlee, associate director of the Fed’s Division of Banking Supervision and Regulation in Washington, said yesterday in testimony to a House Oversight subcommittee hearing in Atlanta. “The Fed is unlikely to revise the ‘extended period’ language, given the fragile economic recovery,” said Takashi Yamamoto, chief trader in Singapore at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest bank. “The dollar is a favored funding currency globally, so its weakening trend is likely to persist.” U.S. factory orders climbed 0.8 percent in September after a 0.8 percent decline in August, according to a Bloomberg News survey of economists before the Commerce Department releases the report in Washington today. Australian Dollar The Australian dollar pared its advance versus the U.S. currency after the central bank raised interest rates by 0.25 percentage point as economists had expected. “A 25 basis point rate hike could potentially see a sell- off in the currency given that some in the market are looking for a more aggressive 50 basis point hike,” said Amanda Tan, an economist at St. George Bank Ltd. in Sydney, before the RBA’s announcement. “The Australian dollar has benefited from improved sentiment with a host of U.S. economic data beating expectations last night.” Eighteen of 22 economists surveyed by Bloomberg News had forecast the Reserve Bank of Australia would increase the overnight cash rate target to 3.5 percent. Australia’s currency traded at 90.52 U.S. cents, trimming its advance to 0.1 percent from as much as 0.6 percent. The currency was at 81.65 yen from 81.54 yen. New Zealand’s dollar gained 0.4 percent to 72.08 U.S. cents and climbed 0.4 percent to 65.07 yen. Benchmark interest rates are 3.50 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Source