By Yoshiaki Nohara and Yasuhiko Seki Jan. 15 (Bloomberg) -- The yen and the dollar advanced on speculation a slowdown in Chinese bank lending will damp growth in the world’s third-biggest economy, spurring demand for the safety of the two currencies. Japan’s currency rose against all 16 of its major counterparts after China’s 21st Century Business Herald said banks are reducing property loans, adding to measures by authorities to counter possible asset bubbles. The euro weakened for a second day against the dollar on concern Greece’s struggles to bring down its budget deficit will reduce investor confidence in the region. “China is beginning to show signs of tightening, which should lead to risk aversion,” said Yoshihiro Nomura, a Tokyo- based foreign-exchange team manager at Trust & Custody Services Bank Ltd. “Investors are sensitive to China’s news. I wouldn’t be surprised if the euro-yen were to drop further.” The yen climbed to 131.33 per euro as of 1:57 p.m. in Tokyo from 132.25 in New York yesterday, after rising to 131.11, the strongest since Dec. 28. The dollar advanced to $1.4417 per euro from $1.4499. The yen traded at 91.15 per dollar from 91.21. Sweden’s krona led losses among the 16 major currencies, dropping 0.6 percent to 7.0541 per dollar, and New Zealand’s dollar slid 0.6 percent to 73.83 U.S. cents. Chinese banks are now only interested in making loans for residential developments, the Guangzhou-based Herald reported on its Web site. The banks aren’t extending loans for luxury homes and commercial developments, the newspaper said, citing unidentified commercial bank officials. China’s Slowdown The People’s Bank of China this week unexpectedly said it will increase the proportion of deposits the nation’s lenders must set aside as reserves in an effort to rein in growth. China’s economy is overheating as asset bubbles and inflation pressures build, posing a “major risk” to global growth, the World Economic Forum said yesterday. “People are now watching closely developments in Chinese policies and market for implications on the global economy, which is increasing its reliance on China,” said Kazumasa Yamaoka, a senior analyst in Tokyo at GCI Capital Co. a foreign- exchange margin-service company. “Risk aversion may affect the cross-currencies such as the Australian dollar.” Commodity Currencies Commodity-related currencies also declined as concern a slowdown in China will curtail its demand for raw materials. The Australian dollar dropped 0.5 percent to 92.73 U.S. cents and lost 0.5 percent to 84.53 yen. China is Australia’s biggest trading partner. The euro extended its weekly loss against the yen after European Central Bank President Jean-Claude Trichet yesterday signalled the lender will not step in to help Greece, saying no nation can expect any “special treatment.” Trichet, speaking after policy makers kept the central bank rate at 1 percent, told euro members yesterday to take the “difficult decisions” needed to tackle “sharply rising” budget gaps or face higher borrowing costs. German Chancellor Angela Merkel said Greece’s mounting budget deficit risks hurting the euro, adding that the currency faces a “very difficult phase.” “Greece’s situation is stoking concerns about the health of other nations in Europe, and is a sell-factor for the euro,” said Daisaku Ueno, president at Gaitame.Com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “It will be long time before sovereign risks disappear.” Weekly Decline The dollar still headed for a second weekly loss against the yen and the euro on speculation the Federal Reserve will keep interest rates near zero to revive growth in the world’s biggest economy. The Dollar Index, which the IntercontinentalExchange Inc. uses to track the currency against those of six major U.S. trading partners including the euro and the yen, fell 0.5 percent this week to 77.061. It rose 0.4 percent today. Growth in U.S. industrial production slowed to 0.6 percent in December from 0.8 percent the previous month, according to a Bloomberg News survey of economists before today’s report. Retail sales unexpectedly fell in December, the Commerce Department said yesterday. “Weak retail sales will weigh on the dollar,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “Fed officials are waiting to see the impact of their stimulus measures on the economy.” Futures on the Chicago Board of Trade show a 28 percent chance the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, down from 49 percent odds a month ago.

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