Euro Gains on China Interested in Buying European Bonds

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Euro Gains on Reports China Interested in Buying European Bonds

http://www.sfgate.com/cgi-bin/ar ... P4VAP2TPLQO15H6.DTL



May 26 (Bloomberg) -- The euro strengthened the most in a week against the dollar and yen on speculation China will increase purchases of European bonds, boosting confidence the region will emerge from its sovereign-debt crisis.

The single currency gained against 14 of its 16 most-traded peers after the Financial Times reported that European Financial Stability Facility Chief Executive Officer Klaus Regling had said Asian investors, including China, may buy Portuguese bailout bonds when the EFSF begins selling in June. Australia's dollar climbed after a report showed business investment increased more than economists forecast in the first quarter.

"Comments from the head of the EFSF that China was clearly interested in purchasing its bond issue next month is providing support for the euro," said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney.

The euro rose to $1.4160 as of 11:17 a.m. in Tokyo from $1.4088 in New York yesterday. It dropped as low as $1.3970 on May 23, the least since March 17. The common currency advanced 0.4 percent to 115.96 yen. The dollar traded at 81.89 yen from 81.97 yen. Against the Swiss franc, the euro rose 0.4 percent to 1.2338, after yesterday dropping to a record low of 1.2271.

Asian investors, including the Chinese government, may comprise a "strong proportion" of the purchasers of Portuguese bailout bonds, the Financial Times cited Regling as saying to reporters yesterday. China was "clearly interested" Regling said, according to the paper.

Urged to Diversify

China is the world's biggest holder of foreign exchange reserves and the largest overseas investor in U.S. debt with holdings at $1.145 trillion, according to Treasury data released this month. Officials including People's Bank of China adviser Li Daokui have urged diversification of the nation's currency reserves away from the U.S.

The euro was still 0.5 percent from a record low against the Swiss franc as European policy makers struggle to find a resolution to Greece's deficit woes.

Greek debt maturities could be extended on a voluntary basis, European Union Economic and Monetary Affairs Commissioner Olli Rehn told the French newspaper Les Echos in an interview published yesterday.

Restructuring No Solution

Restructuring Greece's debt "cannot, must not be the solution," European Central Bank Executive Board Member Juergen Stark said in a speech in Berlin yesterday. Euro-area leaders should "please consider the consequences" of a restructuring, he said.

"China's interest is definitely a short-term positive," said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia's second-largest lender. "The longer-term issue of a restructuring of some sort for Greece remains in the background and may be an obstacle to a longer-term rally in the euro."

The euro dropped 1.8 percent over the past month, according to Bloomberg Correlation-Weighted Currency Indexes, which track 10 developed-nation currencies. The franc climbed 2.5 percent, the greenback gained 1.9 percent and the yen rose 1.5 percent.

Australian capital spending climbed 3.4 percent in the three months to March 31 from the fourth quarter, when it gained a revised 1.5 percent, the government statistics agency said today. The median forecast in a Bloomberg News survey of economists was for a 2.7 percent increase.

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