Euro heads for weekly gain on Europe debt ffforts

The euro headed for a weekly gain against the dollar, snapping two weeks of losses, on speculation financial support for European banks will help stem the region’s debt crisis.

The 17-nation currency was poised for its first weekly advance in a month versus the Swiss franc after the European Central Bank said yesterday it will reintroduce yearlong loans, giving banks access to unlimited cash through January 2013, and resume purchases of covered bonds to encourage lending. The pound rose against all but one of its 16 major counterparts on optimism the Bank of England’s decision to reactivate its bond- purchase program will help revive the U.K.’s faltering economy.

“The idea that European policy makers may finally sense the urgency of the situation lifted the euro,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “The market’s giving them the benefit of the doubt. The euro goes up against the dollar because the policy initiatives are good” for risk sentiment.

The euro traded at $1.3426 at 10:42 a.m. in London from $1.3437 yesterday, having strengthened 0.3 percent this week. The shared currency was little changed at 102.93 yen from 103.09 yen. It bought 1.2370 francs from 1.2370, poised for a 1.8 percent advance this week, the most since the period ended Sept. 9. The dollar traded at 76.67 yen from 76.72.

Merkel, Sarkozy

While the ECB took steps to bolster the region’s lenders, the European Commission is pushing for a coordinated capital injection into banks. German chancellor Angela Merkel said policy makers “shouldn’t hesitate” if it turns out financial institutions are undercapitalized. Merkel will meet with French President Nicolas Sarkozy in Berlin on Oct. 9 for their eighth one-on-one summit in 20 months.

The ECB’s action “is shoring up European growth prospects, and it’s shoring up European banks,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s largest interdealer broker. “That is very positive euro, and I would expect to continue to see the euro being bid as a result.”

The pound strengthened the most in a week against the dollar after Bank of England policy makers yesterday increased the central bank’s quantitative-easing program by 75 billion pounds ($116 billion) to 275 billion pounds. The currency rose even after Moody’s Investors Service downgraded 12 British financial institutions.

Sterling gained 0.5 percent to $1.5519, and appreciated 0.6 percent to 86.49 pence per euro.

Aussie, Kiwi

The Australian and New Zealand dollars advanced for a fourth day against the greenback as gains in Asian stocks boosted demand for higher-yielding assets.

“The market has taken great confidence from the moves by the ECB and BOE and also the realization that politicians are getting a handle on the underlying issue, being bank capital,” said Darryl Conroy, an analyst at Suncorp Bank in Brisbane. “A number of the commodity currencies have tracked a very similar and positive path on less fear emanating out of Europe.”

Australia’s dollar rose 0.4 percent to 97.88 U.S. cents, and the so-called kiwi gained 0.2 percent to 77.30 cents. The MSCI Asia Pacific Index of shares climbed 2 percent.

U.S. Payrolls

Losses in the dollar and yen were tempered before U.S. reports today forecast to show a gain in unemployment in September was not enough to bring down the jobless rate.

Employment climbed by 55,000 workers after no change in August, according to the median forecast of 91 economists surveyed by Bloomberg News. The jobless rate was 9.1 percent for a third month, according to the forecasts.

Unemployment has exceeded 8 percent since February 2009, the longest stretch of such elevated joblessness since monthly records began in 1948.

“The risks of a negative outcome for payrolls is certainly higher than the market is currently expecting,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “Demand across Europe and Asia and the U.S. is slowing as well. That’s something that should benefit the U.S. dollar.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 78.598 after weakening as much as 0.3 percent to 78.415.