By Candice Zachariahs and Ron Harui March 15 (Bloomberg) -- The dollar and yen rose amid concern tensions between the U.S. and China will escalate and sovereign credit ratings will deteriorate, boosting demand for the currencies as a refuge. Japan’s yen strengthened versus 12 of its 16 major counterparts after Chinese Premier Wen Jiabao rebuffed calls for the yuan to appreciate, risking a worsening of relations with the U.S. The pound fell for the first time in three days against the dollar after Moody’s Investors Service said the U.K. has moved “substantially” closer to losing its AAA credit rating as the cost of servicing its debt rose. “This could turn into a big problem for the markets, as the U.S. seems to be hardening its stance on China,” said Toshihiko Sakai, head of trading for currencies and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest banking group. “It’s possible that the U.S. will name China as a country which is manipulating its currency. This may lead to risk aversion, causing yen appreciation, and some dollar strength against the euro.” The dollar rose to $1.3738 per euro as of 2:06 p.m. in Tokyo from $1.3769 in New York on March 12. It was at 90.60 yen from 90.56 yen. The euro slipped to 124.42 yen from 124.69 yen. The pound declined to $1.5159 from $1.5204 in New York on March 12. The currency fetched 90.62 pence per euro from 90.53 pence. The Dollar Index gained for the first time in four days after Wen said yesterday “I don’t think the renminbi is undervalued,” using another term for the yuan. He also said at the press conference in Beijing “we oppose countries pointing fingers at each other and even forcing a country to appreciate its currency.” The Dollar Index, which tracks the currency against those of six major U.S. trading partners, rose 0.1 percent to 79.941. ‘Double-Dip’ In its semi-annual report to Congress in October, the U.S. Treasury Department criticized China for the “lack of flexibility” of the yuan and a buildup of foreign-exchange reserves, while stopping short of branding the country a currency manipulator. The dollar also advanced for the first day in four versus the euro as Asian equities fell the most in more than a week after the Chinese premier said ballooning sovereign debt and high unemployment worldwide could send the global economy into a “double dip” slump. “That’s not the rosy, upbeat picture that foreign-exchange traders have been running with and Wen’s comments have left some concern emanating through Asia,” said Robert Rennie, head of currency research at Westpac Banking Corp. in Sydney. “It has seen the U.S. dollar firmer within Asia and that may continue in the short-term.” The South Korean won was the worst-performer among the 16 most-traded currencies, falling 0.6 percent to 1,134.35 per dollar, according to data compiled by Bloomberg. The Malaysian ringgit weakened 0.8 percent to 3.3190. U.K. Debt Servicing The British currency fell for the first time in three days versus the euro on concern that the U.K. will have difficulty in servicing its ballooning debt. The U.K. and U.S. governments must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview. Under the ratings company’s baseline scenario, the U.K. will spend more on debt service as a percentage of revenue this year than any other top-rated country, Moody’s said today in a report. Sterling Bears “Moody’s is sending a timely reminder that there are no cost-free options out there,” said Adrian Foster, head of financial-markets research for Asia at Rabobank Groep NV in Hong Kong. “On the one hand, you risk weakening your economy. On the other hand, you risk weakening your credit rating. You wouldn’t want to own” the pound, he said. Futures traders are more bearish than ever on sterling amid concern that the currency’s declines will continue as the U.K.’s budget gap approaches the Greek shortfall. Greece’s deficit at 12.7 percent of gross domestic product was the European Union’s largest in 2009. Hedge funds and large speculators had 67,549 more bets that the pound would decline against the dollar than contracts that profit from a rise as of March 2, data from the Commodity Futures Trading Commission in Washington show. Futures traders haven’t been that bearish since at least January 1986, as far back as CFTC data go. The so-called net-short position has averaged 60,548 in the five weeks to March 9, compared with about 7,200 in October 1992, the year that George Soros made $1 billion betting against the currency. To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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