By Yasuhiko Seki and Ron Harui Feb. 19 (Bloomberg) -- The dollar climbed to a nine-month high against the euro after the Federal Reserve raised the discount rate charged to banks for direct loans for the first time in more than three years. The U.S. currency headed for a sixth week of gains against the 16-nation euro as the central bank took another step to withdraw from the unprecedented measures it used to halt the financial crisis. The Australian and New Zealand currencies fell for a third day on concern higher U.S. borrowing costs will weaken the yield advantage of the South Pacific nations’ assets. “The Fed’s action came as a surprise and enhanced speculation that it will withdraw stimulus ahead of major peers,” said Tomokazu Matsufuji, a dealer in Tokyo at SBI Liquidity Market Co., a unit of financier SBI Holdings Inc. “This will drive the dollar higher.” The dollar rose to $1.3466 per euro as of 6:40 a.m. in London from $1.3527 yesterday in New York, after climbing to $1.3444, the strongest since May 18. The greenback traded at 91.90 yen from 91.81 yen after earlier advancing to 92.09 yen, the highest since Jan. 12. Australia’s currency fell 0.6 percent to 88.91 U.S. cents, and New Zealand’s dollar declined 0.6 percent to 69.38 U.S. cents. Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand. The Fed increased its discount rate to 0.75 percent from 0.50 percent and said that effective March 18 “the typical maximum maturity for primary credit loans will be shortened to overnight.” ‘Further Normalization’ “These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the board said in a statement yesterday. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.” Gains in the dollar were tempered after Fed policy makers curbed speculation the central bank will raise interest rates this year. Fed Bank of St. Louis President James Bullard said the financial markets’ view that borrowing costs will increase later this year is “overblown.” Atlanta Fed President Dennis Lockhart said yesterday’s decision to raise the discount rate doesn’t signal a tightening of policy. “As the Fed made it clear, the discount rate hike won’t lead to an imminent rise in the federal funds rate,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., Japan’s second-largest publicly traded lender. “Gains of the dollar in the wake of the discount rate increase will lose steam sooner rather than later.” Asian Stocks Fall The yen strengthened for the first time in four days against the euro as the Fed’s discount-rate increase pushed Asian stocks lower. The MSCI Asia Pacific Index of shares slid 2.2 percent and the Nikkei 225 Stock Average fell 2.1 percent. “Worries that the Fed may take more exit steps from its extremely accommodative stance are weighing on risk sentiment,” said Takashi Kudo, general manager of market information service in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is probably causing the yen to be bought.” The euro was poised for a second weekly loss versus the Australian dollar on concern that fiscal deficits in Europe will worsen, diminishing the allure of the region’s assets. Credit-default swaps on Greek sovereign debt advanced on concern the country may be unable to borrow unless it receives a pledge of financial assistance from the European Union. Greece needs to raise 53 billion euros ($71 billion) this year and faces about 16 billion euros of bond redemptions by May. A political ally of German Chancellor Angela Merkel said this week that “not a single euro” should go to help Greece. Debt Risks “With sovereign debt risks weighing on the euro-zone and Japan, the dollar appears to have the relative advantage over the euro and the yen,” Philip Wee, senior currency economist in Singapore at DBS Group Holdings Ltd., wrote in a research note today. “Looking ahead, the Fed is talking about normalizing its balance sheet.” DBS, Southeast Asia’s largest bank, said in the note that it lowered its euro forecasts to $1.38 from $1.51 for the first quarter and to $1.50 from $1.54 for year-end. The euro was at A$1.5149 from A$1.5306 on Feb. 12. Credit-default swaps on Greek five-year government debt climbed 7 basis points to 358 yesterday, according to CMA DataVision prices. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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