The yen and dollar strengthened versus most major counterparts as concern that unrest in the Middle East will spread boosted demand for safer assets. Japan’s currency rose from a three-month low against the euro as Asian stocks fell after Libyan leader Muammar Qaddafi’s son warned of a civil war following attacks on anti-government protesters by security forces. The euro fell for the first time in four days against the dollar after German Chancellor Angela Merkel’s party suffered its worst defeat since World War II in the country’s richest state. South Korea’s won dropped by the most in a week on speculation China has less incentive to let the yuan appreciate after the end of a Group of 20 meeting. “A further escalation in the current political tensions in the Middle East would likely increase demand for safe-haven currencies,” said Mike Jones, currency strategist at Bank of New Zealand Ltd. in Wellington. “Near term, this may provide solid support for the yen and the dollar.” The yen climbed to 113.68 per euro as of 1:57 p.m. in Tokyo from 113.90 in New York on Feb. 18, after earlier falling to 114.05, the weakest level since Nov. 22. Japan’s currency was at 83.12 per dollar from 83.18. The euro declined to $1.3676 from $1.3693. U.S. financial markets are closed today for a holiday. Civil War Saif al-Islam Qaddafi called on protesters to engage in dialogue or face a civil war that risks “hundreds of thousands of dead,” as a widening revolt posed the most serious challenge to his father’s 41 years of rule. Libyan security forces yesterday attacked anti-government protesters, in Benghazi, the nation’s second largest city. The North African country, holder of the largest crude oil reserves on the continent, has become the focal point of region-wide protests ignited by the ouster of Tunisia’s president last month and energized by the fall of Egyptian President Hosni Mubarak on Feb. 11. Violence has flared in Yemen, Djibouti and Bahrain. The yen typically strengthens in times of political, financial and economic turmoil as Japan’s trade surplus makes the currency attractive because it means the nation doesn’t have to rely on overseas lenders. The euro retreated from a three-month high versus the yen after Merkel’s party lost control of Hamburg in the first of seven state elections in Germany this year that may threaten to restrict her room to handle Europe’s debt crisis. Defeat in Hamburg Merkel’s Christian Democratic Union took 21.6 percent in the election, its worst result in the port city since the first postwar vote in 1946 and half its score in 2008, television projections showed yesterday. The Social Democrats, the main national opposition party, took 48.5 percent, enough to end the CDU’s 10-year rule in Hamburg and form a majority government without need of a coalition partner. “One of the pillars we have relied on for euro-dollar support fell this weekend and the ramifications could be considerable,” Douglas Borthwick, managing director and head of foreign-exchange trading at Stamford, Connecticut-based Faros Trading LLC, wrote in a note yesterday. “While this is a setback to our stronger euro-dollar call, it by no means causes us to reverse it.” South Korea’s won ended its two-day gain against the dollar on speculation China will slow the pace of yuan appreciation. G-20 finance ministers pledged yesterday to craft an early warning system for economic imbalances. China was South Korea’s biggest export market last month. “Last week, Asian currencies were rising as China was fixing the yuan higher ahead of the G-20,” said Thomas Harr, Singapore-based head of Asian foreign-exchange strategy at Standard Chartered Plc. “Now the market is expecting China to slow the yuan’s rise. That’s weighing a bit on Asian currencies like the won.” The won weakened 0.6 percent to 1,119.20 per dollar from 1,112.10 last week. Milk Prices New Zealand’s dollar climbed toward a one-week high against its U.S. counterpart on speculation Fonterra Cooperative Group Ltd. will raise its forecast for payouts to farmers, boosting the nation’s economic recovery. The board of Auckland-based Fonterra, the world’s largest dairy exporter, meets tomorrow after whole milk powder prices climbed to a 31-month high. The dairy exporter raised its forecast payment to farmers by 4.5 percent on Dec. 10, citing higher international prices. “Fonterra could be announcing an upward revision to their forecast dairy payout for this season sometime this week,” said Khoon Goh, head of market economics at ANZ National Bank Ltd. in Wellington. That should be taken positively by the currency markets and could see the New Zealand dollar well supported.’’ New Zealand’s dollar rose to 76.38 U.S. cents from 76.16 cents last week, after rising to 76.57 on Feb. 18, the strongest level since Feb. 10. To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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