By Paul Dobson and Yasuhiko Seki March 4 (Bloomberg) -- The euro fell from a two-week high against the dollar on speculation the European Central Bank will delay withdrawing stimulus measures today as Greece’s struggle to reduce its budget deficit hampers the region’s recovery. Europe’s currency snapped a two-day advance against the yen after German Chancellor Angela Merkel said a meeting tomorrow with Greek Prime Minister George Papandreou won’t be “about aid commitments.” The yen rose versus higher-yielding currencies as stocks fell amid concern Chinese lending will slow. “The ECB will display a cautious tone,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The Federal Reserve is ahead of the ECB and will tighten before the ECB, and that will be dollar supportive.” The euro dropped to $1.3650 as of 10 a.m. in London from $1.3697 in New York yesterday, when it climbed to $1.3736, the strongest since Feb. 17. The 16-nation currency slipped to 120.82 yen from 121.17. The yen was little changed at 88.50 per dollar, after earlier rising to 88.14, the highest level since Dec. 10. All 52 economists surveyed by Bloomberg forecast the ECB will keep the benchmark rate at a record-low 1 percent at its policy meeting today. The euro advanced versus the yen on Dec. 3 after policy makers started scaling back the central bank’s emergency stimulus lending. ECB Update The ECB hasn’t yet said when it will stop unrestricted offerings of seven-day, one-month and three-month funds. ECB President Jean-Claude Trichet will provide an update on the strategy at a briefing at 2:30 p.m. in Frankfurt. The euro slumped 8 percent in the past three months against the dollar amid concern that nations including Greece may struggle to manage their budget shortfalls. Under pressure to convince investors that the southern European nation can control costs, Papandreou outlined a program yesterday to save 4.8 billion euros ($6.6 billion) and said after those measures it’s now “Europe’s turn.” The government started selling 10-year bonds in euros today. While Germany’s Merkel faces domestic opposition to tapping taxpayers to extend a financial lifeline to Greece, protesters in Athens today seized the finance ministry building and blocked roads. ‘Exceptional Test’ “The next five years truly look to be an exceptional test of fiscal courage and credibility across western Europe,” Adarsh Sinha, an analyst at Barclays Capital in London, wrote in an investor note today. “The longer-term pressures remain and the trend for the currency is likely to remain down.” The U.K. pound fell against the dollar before a central- bank meeting where economists unanimously say policy makers will keep the main interest rate at a record low. The Bank of England will leave the main interest rate unchanged at 0.5 percent, according to all 60 economists in a Bloomberg survey. In a separate poll, all 45 economists predict the central bank will keep its 200 billion pound ($301 billion) bond-buying program on hold. The pound fell 0.2 percent to $1.5066. The U.K. currency was little changed at 90.61 pence per euro. The Shanghai Composite Index dropped 73.63, or 2.4 percent, to 3,023.37 at the close, the biggest decline since Jan. 26 as Industrial Bank Co., part-owned by a unit of HSBC Holdings Plc, predicted growth in the bank’s new lending will almost halve this year. The MSCI Asia Pacific Index dropped 0.7 percent. Yen Gains The yen strengthened against the Australian and New Zealand dollars on speculation Japanese companies will bring home overseas earnings before the fiscal year ends this month, while slowing growth in Europe damped demand for the higher-yielding currencies. Large Japanese manufacturers expect the yen to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s quarterly Tankan survey. “The decline in the euro appears to have caught many exporters unawares,” Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo, wrote in a research note today. “Importers appear less damaged by the slump in global demand. Many of them appear willing to repatriate some of their overseas-earned profits.” Australia’s dollar fell 0.5 percent to 90.12 U.S. cents from 90.59 cents yesterday. It fell 0.5 percent to trade at 79.76 yen. The New Zealand dollar slid 0.8 percent to 68.94 U.S. cents, and declined 0.7 percent to 61.02 yen. To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.

Source