(BN) Euro Gains First Time Since October Before Summit; Dollar Drops

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Dec. 3 (Bloomberg) -- The euro advanced for the first time
in five weeks against the dollar as six central banks including
the Federal Reserve acted to make more funds available to
lenders to keep Europe's debt crisis from deepening.

Gains in the shared currency were tempered by concern a
summit of European leaders next week won't be able to stem the
two-year-old crisis that began in Greece. South Africa's rand
was the best performer among the dollar's 16 most-traded peers
as stocks and commodities rebounded from two weeks of losses.
The greenback and the yen were the biggest losers as demand for
safety faded.

"The overall hope is that by Friday we'll be able to get a
lot more financial monetary stimulus and a comprehensive plan to
save Europe," Richard Franulovich, a senior currency strategist
at Westpac Banking Corp. in New York, said yesterday. "You have
a huge week next week."

The euro rose 1.2 percent to $1.3391 yesterday, its first
weekly gain since the five days ended Oct. 28. It advanced from
a seven-week low of $1.3212 that was reached Nov. 25 as
investors avoided risk. The 17-nation currency was strengthened
1.5 percent versus the yen to 104.43 in its first weekly advance
since Nov. 4. The dollar gained for a second week against the
yen, rising 0.3 percent to 77.90 yen.

South Africa's rand appreciated 6.2 percent to 8.0437 in
its biggest weekly gain since February 2009.

Franc Weakens

The Swiss franc declined versus the euro as Switzerland
said it may consider additional steps to support the central
bank in its fight to curb the currency's gains. The franc
slipped 0.2 percent to 1.2342 per euro.

The cost for European banks to fund in dollars shrank from
the most expensive since 2008 after the central banks said Nov.
30 they'd cut the rate on dollar liquidity swap lines.

The three-month cross-currency basis swap, the rate banks
pay to convert euro payments into dollars, fell to as low as
1.19 percentage points below the euro interbank offered rate on
Dec. 1. It touched 1.63 percentage points on Nov. 30.

The central banks, including the ECB and Bank of Japan,
agreed to reduce their rate to the dollar overnight index swap
rate plus 50 basis points, or half a percentage point, from 100
basis points, the Fed said in a statement.

"It doesn't solve all of the euro zone's problems, but it
reduces some of the financial-system concern," Greg Anderson, a
currency strategist at Citigroup Inc. in New York, said Nov. 30.

Loans Through IMF

The euro reached $1.3548 yesterday, the strongest intraday
level since Nov. 22, on optimism European central banks may
funnel loans through the International Monetary Fund to fight
the debt crisis. Two people familiar with the negotiations said
the region's finance ministers gave the go-ahead for work on the
IMF plan at a Nov. 29 meeting. The proposal could deliver up to
200 billion euros to fight the debt crisis, said the people, who
declined to be named because talks are at an early stage.

European Union leaders meet Dec. 9 in Brussels to address
the euro region's debt crisis.

"We are now entering the critical period of 10 days to
complete the crisis response," EU Economic and Monetary Affairs
Commissioner Olli Rehn told reporters in Brussels on Nov. 30.
"It's very important that we at this juncture reinforce our
financial firewalls" to "reduce market turbulence," he said.

Futures traders increased bets the euro will fall against
the dollar, data from the Washington-based Commodity Futures
Trading Commission show. So-called net-short wagers rose to
104,302 in the week ended Nov. 29, the most since June 2010.

China's Bank Move

The dollar and the yen slid on Nov. 30 as China, in a move
to encourage growth, cut the amount of cash banks must set aside
as reserves for the first time since 2008, damping safety
demand. The People's Bank of China said reserve ratios will
decline by 50 basis points effective Dec. 5. That may add 350
billion yuan ($55 billion) to the nation's financial system,
according to UBS AG.

Australia's dollar climbed 5.2 percent this week to $1.0215
as the Standard & Poor's 500 Index of stocks gained 7.4 percent
and the S&P GSCI index of 24 raw materials rose 3.5 percent.
Neither gauge had posted a weekly gain since Nov. 11.

"All the developments built upon each other," Eric
Viloria, senior currency strategist for Gain Capital Group LLC
in New York said Nov. 30. "You have China's ratio cut, which
was supportive of risk, you had lower swap rates, which was
extremely supportive, so you saw big spikes in commodity
currencies."

The Dollar Index, which IntercontinentalExchange Inc. uses
to track the greenback against the currencies of six major U.S.
trading partners, weakened 1.2 percent to 78.683.

Action by Japan

Japan's currency fell yesterday versus most major peers as
Finance Minister Jun Azumi said he'll take action on speculative
currency moves. Japan sold 9.09 trillion yen ($116.5 billion) in
the currency market from Oct. 28 to Nov. 28, the Ministry of
Finance said on its website, to stem yen appreciation.

The yen advanced 2.14 percent over the past month in the
best performance against nine developed-market peers measured by
Bloomberg Correlation-Weighted Currency Indexes. The dollar rose
2.05 percent, and the euro declined 0.88 percent.

To contact the reporters on this story:
Catarina Saraiva in New York at
asaraiva5@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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