By Ron Harui Dec. 31 (Bloomberg) -- The dollar fell for the first time in four days against the euro and the yen on speculation the U.S. currency’s rally this month was overdone. The decline trimmed the dollar’s monthly gain versus the euro to 4 percent as futures traders increased bets this month to the most since March that the euro will drop against the dollar. The greenback slid against currencies of commodity producers including the South African rand and Australian dollar, among the biggest gainers this year, as raw-material prices were poised to rise the most since 1979. “The dollar has been bought back in December on profit- taking by people who had been selling it earlier this year,” Darius Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong, said in a Bloomberg Television interview. “This kind of year-end profit-taking is only temporary.” The dollar depreciated to $1.4414 per euro as of 7:52 a.m. in London, from $1.4339 in New York yesterday. It declined to 92.25 yen, from 92.44 yen yesterday, when it reached 92.77 yen, the strongest level since Sept. 8. The yen dropped to 132.95 against the euro, from 132.54, after earlier touching 133.13, the weakest since Dec. 7. Figures from the Washington-based Commodity Futures Trading Commission showed the difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, so-called net shorts, was 16,448 on Dec. 15, compared with net shorts of 511 a week earlier. The dollar has dropped this year against all of its 16 most-traded counterparts except for the yen as a global recovery eroded demand for the safety of the world’s reserve currency. Commodity Currencies The rand rose 0.3 percent to 7.3690 per dollar, up more than 29 percent this year. The Australian dollar climbed 0.6 percent to 89.97 U.S. cents, rising 28 percent versus the U.S. currency in 2009. The Reuters/Jefferies CRB Index of 19 commodities rose 23.6 percent this year, fueled by demand from China for raw materials. Reports next week may show the U.S. recovery is picking up, backing the case for the Federal Reserve to withdraw stimulus, pushing up bond yields. “A combination of higher U.S. yields and further signs of improvement in the labor situation in the U.S. should continue to underpin the dollar,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “There is a stronger sense that 2009 was not as kind to the Japanese economy as it was to other parts of Asia. We are set to see more policy options being discussed within the BOJ.” Dollar-Yen The U.S. currency has risen 6.6 percent versus the yen this month and headed for a 1.7 percent annual advance. The dollar has fallen 10 percent versus the yen in the past 10 years. The Institute for Supply Management’s manufacturing index climbed to 54.0 in December from 53.6 in November, according to a Bloomberg survey of economists. Readings above 50 signal expansion. The Tempe, Arizona-based group will release its report on Jan. 4. U.S. payrolls were unchanged in December, after falling 11,000 in November, a separate Bloomberg survey showed. The Labor Department will release its report on Jan. 8. The yield premium offered by 10-year Treasury notes over similar-maturity Japanese bonds remained near the widest in more than two years, making U.S. debt more appealing than Japan’s securities. The spread was at 2.50 percentage points today after reaching 2.53 percentage points on Dec. 24, the highest since December 2007, based on closing prices. Bank of Japan The Bank of Japan said on Dec. 18 it was intolerant of price declines amid signs deflation may undermine the economic recovery. Governor Masaaki Shirakawa said Dec. 24 his policy board is ready to act to support growth. “There are some expectations that the BOJ may do more on quantitative easing,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “We see dollar-yen going higher.” Rising optimism that Switzerland’s economy is recovering is strengthening the nation’s currency without spurring intervention by the Swiss National Bank, according to BNP Paribas SA. “It seems increasingly clear that the SNB is following the broad franc,” analysts led by Hans-Guenter Redeker, London- based global head of foreign-exchange strategy at BNP Paribas, wrote in a research note yesterday. “As long as the euro-dollar falls and the economy is improving, there is no need to intervene actively in the euro-Swiss.” Switzerland’s economy returned to growth in the third quarter after a yearlong contraction. Gross domestic product rose 0.3 percent from the second quarter, when it fell 0.3 percent, the State Secretariat for Economic Affairs in Bern said on Dec. 1. The franc was at 1.4858 per euro, from 1.4864 yesterday. It has climbed 1.5 percent against the euro this month for a 0.5 percent advance this year. To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net;

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