Dec. 5 (Bloomberg) -- The euro advanced, extending last
week's gains versus the dollar and yen, after France and Germany
said they want a rewrite of the European Union's governing
treaties to tighten economic cooperation in the region.
The 17-nation currency was supported as Italy's cabinet
approved a deficit-cut plan, easing concern the region's debt
crisis in worsening. Sterling strengthened as an index of U.K.
services unexpectedly gained and U.S. services expanded in
November at the slowest pace since January 2010. The yen and
dollar weakened as stocks advanced.
"It looks like German Chancellor Angela Merkel's way is
the right direction, but we will see if the market can wait long
enough for them to actually make any change," said Mamoru Arai,
foreign exchange manager at Mizuho Financial Group Inc. in New
York. "The trade to sell dollars and buy euro on this is still
OK."
The euro rose 0.5 percent to $1.3457 at 12:44 p.m. New York
time after gaining 1.2 percent last week. The shared currency
climbed 0.2 percent to 104.68 yen. The dollar weakened 0.3
percent to 77.78 yen.
Merkel met French President Nicolas Sarkozy in Paris today
to work on a plan for stricter enforcement of the region's
deficit rules. European Union leaders will hold a summit in
Brussels Dec. 9.
"Our decisions were to craft new rules to avoid a repeat"
of the crisis, Sarkozy said after the two met during lunch at
Sarkozy's Elysee palace. "This could be a new treaty signed by
the 27 or at the level of the 17, and with whatever other
country wants to join."
Common Goal
Italian Prime Minister Mario Monti announced 30 billion
euros ($40.3 billion) of austerity and growth measures
yesterday. The premier will present the package, which includes
a tax on luxury goods, resurrects a property levy on first
homes, and forces many workers to delay retirement.
"Policy makers working together rather than working
against each other," may underpin the euro, said Adam Cole,
global head of foreign-exchange strategy at RBC Europe Ltd. in
London. "This may be a positive development" for the common
currency."
The Standard & Poor's 500 Index gained 1.7 percent and the
S&P GSCI Index of 24 raw materials rose 0.5 percent.
The yen fell 0.3 percent against nine developed nation
currencies, according to Bloomberg Correlation-Weighted Indexes.
The dollar declined 0.6 percent.
The Japanese currency may weaken toward 79.36 versus the
dollar should it remain above support levels indicated by
ichimoku cloud analysis, Commerzbank AG said.
Dollar Declines
"The market remains underpinned by cloud support at 76.76
and 76.47," Karen Jones, head of fixed-income, commodity and
currency technical analysis at Commerzbank in London, wrote in
an e-mailed report today. "We look for these supports to hold
the downside and while above here, the market will remain well-
placed for a retest of the four-year downtrend at 79.36."
The Dollar Index fell 0.5 percent to 78.297. The gauge,
which tracks the greenback against six major trading partners,
is weighted 57.6 percent to the euro.
At its meeting on Dec. 8, the ECB will cut its benchmark
interest rate to 1 percent from 1.25 percent, according to the
median estimate of economists surveyed by Bloomberg News.
Bank of Canada Governor Mark Carney will be the only
central bank leader in the Group of 10 countries to raise
interest rates next year, according to forecasts compiled by
Bloomberg News. Inflation has exceeded the bank's 2 percent
target for 11 months as the economy grows at double the pace of
the Group of Seven nations.
Canada's dollar rose 0.6 percent to C$1.0138 per U.S.
dollar. The currency is turning into a haven for foreign-
exchange investors shunning European turmoil and seeking the
safety of the U.S. without the budget deficits or political
gridlock.
Peso Performs
Mexico's peso was the best performer against the dollar
after the nation's central bank started to auction $400 million
of reserves last week. The move was to provide liquidity and
arrest a slide in the currency, that's made it the worst
performer in Latin America this year, according to an e-mailed
statement from the nation's Currency Exchange Commission on Nov.
29.
The peso rose 1.1 percent to 13.4841 per dollar.
The pound strengthened against the dollar, snapping a two-
day decline. It rose 0.5 percent to $1.5674.
A gauge of services activity based on a survey of
purchasing managers rose to 52.1 from 51.3 in October, according
to Markit Economics and the Chartered Institute of Purchasing
and Supply. In the U.S. the Institute for Supply Management's
non-manufacturing index unexpectedly fell to 52 last month from
52.9 in October, the Tempe, Arizona based-group said today.
To contact the reporters on this story:
Keith Jenkins in London at
Kjenkins3@bloomberg.net ;
Allison Bennett in New York at
abennett23@bloomberg.net
To contact the editor responsible for this story:
Dave Liedtka at
dliedtka@bloomberg.net
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