By Justin Carrigan Jan. 20 (Bloomberg) -- The yen and dollar rose on concern China’s moves to curb bank lending will slow the global economic recovery. Greek bonds slumped, driving the two-year yield to its highest level in more than a year, on speculation the government may struggle to fund the biggest deficit in the European Union. The yen and the dollar advanced against all of the major currencies at 12:40 p.m. in London. China’s Shanghai Composite Index fell 2.9 percent, dragging the MSCI Emerging Markets Index down 0.8 percent. The MSCI World Index of 23 developed nations’ stocks slid 0.6 percent. Futures on the Standard & Poor’s 500 Index lost 0.6 percent. The yield on Greece’s two-year note surged as much as 89 basis points to 4.56 percent. Europe’s common currency declined after International Monetary Fund Managing Director Dominique Strauss-Kahn said in an interview in Hong Kong that Greece’s budget woes are “a serious problem.” Demand for the relative safety of the yen and the dollar increased after Liu Mingkang, China’s chief banking regulator, said some banks were asked to pare lending after a record 9.59 trillion yuan ($1.4 trillion) in new loans in 2009. “The fear is that Chinese authorities may have no choice but to slam the brakes,” said Neil Mellor, a currency strategist at BNY Mellon Corp. in London. The yen climbed 1.2 percent versus the euro and 0.3 percent compared with the dollar. The U.S. currency strengthened 1 percent to trade at a five-month high against the euro. The New Zealand dollar declined against all 16 of its peers after consumer prices slipped 0.2 percent in the fourth quarter from the previous three months, damping the prospects for interest- rate increases. Greek Bonds Tumble Greek bonds tumbled, sending the premium investors demand to hold the government’s 10-year bonds instead of similar- maturity benchmark German debt to 294 basis points, near the 300 basis-point level that would make the widest gap since the euro was introduced more than a decade ago. The yield on the 10-year note jumped 27 basis points to 6.17 percent. European Commission President Jose Barroso said the nation’s economy is at a “delicate moment.” Greece’s budget deficit is forecast to reach 12.7 percent of gross domestic product this year, three times the limit for euro members. The Dow Jones Stoxx 600 Index lost 0.5 percent, while Greece’s benchmark ASE Index lost 2.1 percent. Drugmaker shares gained on speculation the Democrat Party’s loss of a key Senate seat will derail President Barack Obama’s attempts to overhaul the U.S. health-care system. Republican Scott Brown won a Senate seat in Massachusetts, giving his party enough members to block votes on the government’s proposed bill to revamp the U.S. health-care system. Drugmakers, Technology Stocks The Dow Jones Stoxx 600 Health Care Index added 0.8 percent. GlaxoSmithKline Plc, Britain’s biggest drugmaker, added 0.5 percent. Sanofi-Aventis added 0.4 percent in Paris, while Merck KGaA advanced 2.9 percent in Frankfurt. Takeda Pharmaceutical Co. gained 1.7 percent in Tokyo, while Astellas Pharma Inc., which gets 27 percent of its sales from North America, climbed 2.7 percent. Technology stocks rallied after International Business Machines Corp., the world’s largest computer-services company, said yesterday 2010 profit will top its earlier target. ASML Holding NV, Europe’s largest maker of semiconductor equipment, jumped 4.4 percent in Amsterdam after reporting profit that beat analysts’ estimates. Bank Earnings The decline in U.S. futures indicated the S&P 500 may retreat from yesterday’s 15-month high. Bank of America Corp., the largest U.S. bank, posted its third loss in the past five quarters, driven by the cost of repaying U.S. bailout funds and defaults on consumer loans. Bank of New York Mellon Corp., the world’s biggest custody bank, said fourth-quarter profit from continuing operations was 55 cents a share excluding some items, worse than the 52 cents forecast by analysts. Morgan Stanley is among U.S. companies that report earnings later today. Reports on U.S. construction and producer prices are scheduled for today. Housing starts were probably little changed in December, economists said before a Commerce Department release due at 8:30 a.m. in Washington, while a separate report from the Labor Department, also due at 8:30 a.m., may confirm inflation slowed in December. Crude oil fell 1.5 percent to $77.80 a barrel in New York trading. Copper for delivery in three months declined 1.2 percent to $7,452 a metric ton in London, leading declines in industrial metals. Gold for immediate delivery retreated 0.9 percent to $1,129.15 an ounce, while palladium dropped 1.2 percent to $461 an ounce, its first reversal in six days. The cost of protecting against a default on European corporate bonds rose, with credit-default swaps on the high- yield Markit iTraxx Crossover Index climbing 7 basis points to 417, according to JPMorgan Chase & Co. prices at 9:23 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and an increase indicates a deterioration in perceptions of credit quality. The yield on the 10-year Treasury note declined 3 basis points to 3.67 percent, while the 10-year German bund yield was down 2 basis points at 3.49 percent. To contact the reporter on this story: Justin Carrigan in London on jcarrigan@bloomberg.net.

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