Yen Gains as Stocks Drop Before Geithner, Boosting Haven Demand

By Kim-Mai Cutler and Ye Xie

Feb. 10 (Bloomberg) -- The yen rose against most major currencies as stock declines spur demand for the Japanese currency as a haven before the Treasury announces a bank rescue and the U.S. Senate votes on an economic stimulus package.

The euro fell against the yen after Russian banks asked the government to moderate talks with foreign creditors on $400 billion of loans and UBS AG reported a larger-than-forecast quarterly loss, adding to speculation financial turmoil is worsening. Treasury Secretary Timothy Geithner is due to detail the U.S. financial rescue plan at 11 a.m. in Washington.

“The main focus will be on what Geithner says and whether there will be a bad-bank plan,” said Geoff Kendrick, a senior currency strategist at UBS in London. “Markets are preparing for a plan that’s somewhat disappointing compared to where we were yesterday.”

The yen gained 0.4 percent to 118.45 per euro at 8:39 a.m. in New York, from 118.94 yesterday. Japan’s currency advanced 0.3 percent to 91.24 per dollar from 91.46. The euro dropped 0.1 percent to $1.2984 from $1.3003.

Standard & Poor’s 500 Index futures expiring in March lost 0.2 percent. The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock-market price changes that’s used as a measure of risk aversion, climbed 0.6 percent to 43.64 yesterday.

Nikkei Report 

The euro weakened as much as 1.5 percent versus the dollar after the Nikkei newspaper, citing an interview with Russian Association of Regional Banks head Anatoly Aksakov, reported that Russian banks and businesses may ask foreign lenders to reschedule loans worth $400 billion.

The 16-nation currency pared losses after a Finance Ministry official who declined to be named said in an interview with Bloomberg News that the Russian government isn’t planning to restructure corporate foreign debt and isn’t in talks with foreign banks on restructuring.

“Central and Eastern Europe, Russia, Turkey and South Africa will underperform for some time, not boding well for the long-term euro outlook,” analysts at BNP Paribas SA led by London-based Hans-Guenter Redeker wrote in a note today. “Bear in mind that most Central and Eastern European countries hold 100 percent of their currency reserves in euros, suggesting a further liquidation of local assets held in foreign accounts implies currency reserves will shrink.”

Kazakhstan’s banks may have their ratings cut as the devaluation of the nation’s currency makes it harder for them to repay foreign debt and “substantially increases” credit risk, Moody’s Investors Service said yesterday.

‘Worrying Developments’ 

The widening difference in the premiums that some euro-area nations must pay bondholders relative to German benchmark borrowing costs are “worrying developments,” according to a “speaking note” prepared for Luxembourg Finance Minister Jean- Claude Juncker and obtained by Bloomberg News.
European Central Bank council member Axel Weber said in Kuala Lumpur today that central banks worldwide must focus on the medium and long term even as they respond to the global financial crisis.
Fellow council member Yves Mersch said he’s against following the example of the U.S. Federal Reserve by lowering interest rates to zero.

“I do not consider that we are in the same position as other countries,” Mersch told Bloomberg News today in Kuala Lumpur, where he is attending a meeting of central bankers. “We are an independent central bank.”

UBS Job Cuts 

UBS, Switzerland’s largest bank, said today it will eliminate an additional 2,000 jobs at its securities unit after racking up 8.1 billion Swiss francs ($6.92 billion) in trading losses and leveraged loan impairments.
President Barack Obama is demanding a bill on his desk before Congress leaves for the Feb. 16 Presidents’ Day holiday. The Senate voted 61 to 36 yesterday to end debate on the $838 billion measure and will vote today on whether to approve it.

The Treasury will announce today a fresh round of injections of taxpayer funds into banks, an expanded Federal Reserve-led effort to spur consumer and small-business loans and an initiative to address the toxic assets clogging banks’ balance sheets.

To contact the reporters on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
Last Updated: February 10, 2009 08:44 EST