Dollar Rebounds as Chinese Economic Data Curbs Growth Optimism

By Yasuhiko Seki and Ron Harui

Oct. 22 (Bloomberg) -- The dollar rose after China’s economy expanded less than some economists had estimated, damping investor appetite for higher-yielding assets.

The dollar strengthened against 15 of its 16 major counterparts as Asian stocks accelerated declines following China’s third-quarter gross domestic product results, spurring demand for the safety of the greenback. The South Korean won fell after local media reported that the government is considering measures to help curb exchange-rate volatility.

“The Chinese data simply met the market’s consensus view and failed to offer any positive surprise,” said Tomohiro Nishida, a dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest banking group. “Thus it triggered selling of the euro and other higher-yielding currencies.”

The dollar advanced to $1.4989 per euro at 12:47 p.m. in Tokyo from $1.5016 in New York yesterday when it touched $1.5046, the weakest level since August 2008. The U.S. currency was at $1.6602 per pound from $1.6608 yesterday when it slipped to as low as $1.6637, the weakest level since Sept. 15.

The yen fetched 91.14 per dollar from 90.97, and traded at 136.61 per euro from 136.61. The won fell 0.6 percent to 1,186.55 per dollar. The currency reached 1,155.05 on Oct. 15, the strongest level since September 2008.

The Nikkei 225 Stock Average dropped 1.5 percent and the MSCI Asia-Pacific Index of regional shares slid 1.3 percent.

China’s GDP expanded 8.9 percent in the third quarter following a 7.9 percent gain in the second, the government said today. The median of 34 estimates in a Bloomberg News survey was for a 9 percent gain.

‘They Were Disappointed’

“The markets were anticipating a stronger GDP figure, so they were disappointed by the actual number,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest publicly traded bank. “This caused some buying back of the dollar and the yen.”

The dollar’s weakness is one of the uncertainties China’s economy is facing in its external environment, Li Xiaochao, spokesman for the National Bureau of Statistics, told a news briefing in Beijing today.

The won declined for a second day against the dollar after Yonhap News said, citing government officials it didn’t identify, that South Korea is studying measures to reduce currency volatility. Those steps may include caps on the amount of foreign-currency loans that Korean branches of overseas banks can take out from their parent companies, Yonhap said.

“Upside in the won to the end of the year is limited because of the government,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong.

To contact the reporters on this story: Yasuhiko Seki in Tokyo atyseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

Last Updated: October 22, 2009 00:11 EDT