By Ben Levisohn and Matthew Brown March 8 (Bloomberg) -- The yen and the dollar fell against higher-yielding currencies on speculation wealthier European nations will rescue Greece financially if needed, reducing the perceived risk of debt defaults throughout Europe. The euro rose against the greenback for a second day after French President Nicolas Sarkozy said yesterday the region’s nations are “ready” to help Greece. The yen dropped against 15 of its 16 major counterparts as the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments fell for a seventh straight day. “The fact that Greece is receding into the background is supportive for risk,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The market is heavily short the euro and it can’t fall much further.” A short position is a bet a currency will weaken. The yen declined 0.4 percent to 123.46 per euro at 9:05 a.m. in New York, from 123 on March 5. It touched 123.90, the weakest since Feb. 23, and traded at 90.33 per dollar, compared with 90.28 on March 5. The dollar slid 0.3 percent against the euro to $1.3665, from $1.3626, and 0.7 percent against the New Zealand dollar to 70.16 U.S. cents. The Markit iTraxx Crossover Index of 50 companies in Europe with mostly high-yield debt ratings dropped 10 basis points, or 0.10 percentage point, to 415 basis points in London, the lowest since Jan. 19, JPMorgan Chase & Co. prices show. Asia-Pacific credit indexes also fell. Futures traders decreased bets the euro will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. Bets Against Euro 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 66,770 on March 2, compared with net shorts of 71,623 a week earlier. The euro advanced to a two-week high against the yen and rose versus the dollar after Sarkozy made some of the strongest comments by a European Union leader to signal the bloc would bail out Greece. “I want to be very clear: if it were necessary, the states of the euro zone would fulfill their commitments,” Sarkozy said in Paris yesterday after a meeting with Greek Prime Minister George Papandreou. “There can be no doubt in this regard.” While Greece doesn’t need assistance now, “we have measures, we are ready, we are determined,” he said. Papandreou meets U.S. Secretary of State Hillary Clinton in Washington today and President Barack Obama and Treasury Secretary Timothy F. Geithner tomorrow to discuss Greece’s financial crisis. U.S. Support “The U.S. is going to reinforce completely what France and Germany are telling” Papandreou, said Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong. “That is, you need to lead the solution and other people will fall in line with assistance.” Papandreou’s government last week passed a further round of austerity measures and sold 5 billion euros ($6.8 billion) in government debt. “The important thing is that almost everyone now agrees that the Greek government has done as much as they can at this stage,” Erik F. Nielsen, chief European economist in London at Goldman Sachs Group Inc., wrote in an e-mailed note yesterday. “So, the measures were appropriately met with an avalanche of supportive words from the rest of Europe.” The 16-nation euro also strengthened as a report from the German Economy Ministry showed industrial output expanded 2.2 percent in the year to January, surpassing the 0.9 percent forecast by economists in a Bloomberg News survey. Parity Prediction The euro could undershoot its so-called fair value of $1.23 and reach parity with the dollar “sometime over the next few years,” Nielsen said. The common currency’s muted gains as the Greek crisis has stabilized indicate weakness against the dollar and a possible drop to $1.25, according to Standard Bank Plc. “Despite assurances from the European Union that it stands ready to aid Greece, the euro has hardly recovered from the $1.3430 lows we saw just before the latest Greek package,” Steve Barrow, head of Group of 10 currency strategy at Standard Bank in London, wrote in a research report today. “To call this a dead-cat bounce would be a good description, as long as we left out the word ‘bounce.’” South Africa’s rand strengthened versus the dollar on speculation Greece’s debt crisis will be contained. The rand advanced as much as 0.6 percent to touch 7.3646 per dollar, a seven-week high, before trading at 7.3724. It closed at 7.4073 on March 5. The dollar has room for “substantial” gains against the yen this year, according to Royal Bank of Scotland Group Plc. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Matthew Brown in London at mbrown42@bloomberg.net

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