March 11 (Bloomberg) -- The euro rose to a record against the dollar after a private report showed investor confidence in Germany unexpectedly rose this month.
Expectations among investors and analysts climbed for a second month in March, the ZEW Center for European Economic Research said today, stoking expectations the European Central Bank won't lower its key interest rate while the Federal Reserve keeps cutting borrowing costs. The yen dropped versus all 16 most-traded currencies as stocks advanced, boosting so-called carry trades.
``The trend is very much for further euro upside,'' said Henrik Gullberg, a currency strategist in London at Calyon, the investment-banking arm of Credit Agricole SA, France's second- biggest bank by assets. ``Until we see a shift in the relative growth prospects between Europe and the U.S. we're going to see the euro reaching new highs.''
The euro rose to a record high of $1.5495 and traded at $1.5470 by 7:27 a.m. in New York, from $1.5343 yesterday. The yen dropped to 158.12 per euro from 156.12.
Against the dollar, the Japanese currency fell to 102.19 per dollar, from 101.76 yesterday. It rose to a 7 1/2-year high of 101.43 on March 7.
The ZEW said its index of investor and analyst expectations rose to minus 32, from minus 39.5 in February. Economists expected it to fall to minus 40, according to the median of 40 forecasts in a Bloomberg News survey. The gauge reached a 15-year low of minus 41.6 in January.
`Solid Upswing'
German Bundesbank President Axel Weber said growth in Europe's largest economy remains in a ``solid upswing'' and that he doesn't see any leeway to lower borrowing costs.
``It's not yet clear whether inflation rates will decline considerably over the course of this year,'' Weber said at a press conference in Frankfurt today. ``That's why we have to monitor the developments very closely.''
The Bundesbank expects the economy to expand ``close to potential'' this year, or around 1.5 percent. In 2007, the German economy grew 2.5 percent.
Stocks rose as record oil prices boosted the earnings outlook for the biggest energy producers and financial companies were buoyed by speculation the Federal Reserve will introduce new measures to spur lending and avert a recession.
``In the current risk-sensitive environment currencies are getting a steer from what's going on in stocks,'' said Steve Barrow, chief currency strategist at Bear Stearns Cos. in London. ``The mood in the equity market isn't as sour as it was yesterday and that's driving the yen lower.''
Muto Rejected
The Japanese currency extended its declines against the euro and the yen after Nikkei reported the opposition Democratic Party of Japan, which controls the upper house of Parliament, will reject Toshiro Muto, the government's nominee to head the central bank, and the deputy nominee Takatoshi Ito.
``Senior officials of the opposition DPJ are clearly signaling their opposition to Muto as a governor, in which case the BOJ leadership could be in limbo for the time being,'' analysts led by Hans-Guenter Redeker in London, global head of currency strategy at BNP Paribas SA, wrote in a note to clients today. ``Such a scenario is negative for the yen.''
The MSCI Asia-Pacific index of regional shares rose 0.6 percent and the Euro Stoxx 50 Index, a measure for the region, advanced 0.7 percent. The Fed may lend to financial institutions other than banks to head off a recession, according to a report in the Wall Street Journal.
Traders are betting on the Fed cutting its benchmark interest rate on March 18. The odds on a reduction of three- quarters of a point to 2.25 percent were 100 percent today, according to futures on the Chicago Board of Trade.
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