Euro Holds Gain as Spain Cuts Boosts Bailout Prospects

By Kristine Aquino and Monami Yui - Sep 28, 2012 9:17 AM GMT+0800

The euro remained higher after an advance yesterday as Spain’s pledge to meet its deficit target spurred prospects it will qualify for an international rescue that will help stem Europe’s debt crisis.
The 17-nation currency headed for a second weekly decline versus its U.S. counterpart before a report today that may confirm France’s economy failed to grow for a third-straight quarter. Economists estimate that data next week will show euro- area manufacturing contracted and unemployment climbed to a record. The Australian dollar held a gain from yesterday as Asian stocks extended an advance in global equities.

“There is little doubt that at some point Spain is going to have to ask for aid,” said Kymberly Martin, a markets strategist in Wellington at Bank of New Zealand Ltd. “They are just trying to get as much of their own house in order so that they can negotiate the best condition for themselves. It’s genuinely well supported risk-appetite.”

The euro was little changed at $1.2917 at 10:09 a.m. in Tokyo after adding 0.3 percent yesterday. It bought 100.22 yen from 100.20. The yen fetched 77.59 per dollar from the 77.61 close in New York. The Australian dollar traded at $1.0447 after rising 0.7 percent to $1.0442 yesterday.
The MSCI Asia Pacific Index of shares advanced 0.2 percent after the Standard & Poor’s 500 Index climbed 1 percent in New York and the Stoxx Europe 600 index gained 0.3 percent.
Europe’s shared currency has fallen 0.5 percent since Sept. 21, paring its quarterly advance to 1.9 percent. The yen headed for a 0.8 percent five-day gain and has strengthened 2.9 percent since June 29.
Price swings in major currencies ebbed before the start of holidays in China next week. The JPMorgan G7 Volatility Index falling to 7.76 today, nearing the almost five-year low of 7.75 reached earlier this month.

Fifth Package

Spanish Prime Minister Mariano Rajoy’s government announced its fifth austerity package yesterday, which included a new tax on lottery winnings and a cut in ministries’ spending to shrink the euro area’s third-biggest budget deficit. The 2013 shortfall target is 4.5 percent of gross domestic product compared with a 6.3 percent goal for this year.

The steps may ease demands creditor countries such as Germany and the Netherlands would make in exchange for a financial lifeline. Rajoy is stoking frustration among some European leaders for delaying a decision on whether to seek a bailout. He said on Sept. 25 in comments to the Wall Street Journal that were confirmed by his office that he would “100 percent” seek help if bond yields remained too high.
Spain’s 10-year yield dropped 12 basis points to 5.95 percent yesterday.

Weekly Gain

The yen strengthened versus all of its 16 major counterparts this week as a dimming outlook for the global economy spurred demand for the currency as a refuge.
Japan’s statistics bureau said today consumer prices fell 0.3 percent in August from a year earlier, matching the steepest decline in 16 months as the central bank remains distant from its 1 percent inflation target. The Ministry of Trade said in a preliminary report industrial production fell 1.3 percent in last month after a 1 percent drop in July.

Japan’s weak data are “probably reflective of global concerns,” Bank of New Zealand’s Martin said. “Sometimes, when you get indicators that suggest slowing global growth, the yen actually strengthens.”
A final estimate for France’s GDP will probably show the figure was unchanged in the three months through June 30 from the previous period, according to the median estimate in a Bloomberg News survey of economists before national statistics office Insee releases the data today.

Figures due Oct. 1 will probably confirm that a manufacturing purchasing managers’ index for the euro area was at 46 this month, indicating a contraction for the 14th-straight period, a separate poll showed. The same day, data from the European Union will probably show the currency bloc’s unemployment rate climbed to 11.4 percent in August, economists said. That would be the highest in data compiled by Bloomberg going back to 1990.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net