The yen rose against the dollar and the euro on speculation a drop in stocks will lead investors to sell higher-yielding assets and pay back low-cost loans in Japan, unwinding the carry trade.
Japan's currency erased its decline versus the dollar and the euro after U.S. stocks reversed their rally as analysts predicted that Goldman Sachs Group Inc. will post its first quarterly loss and that Google Inc.'s sales will be hurt by the slowing economy.
The Standard & Poor's 500 Index fell 1.4 percent after advancing as much as 2.3 percent on China's announcement of a $586 billion economic stimulus and the U.S. government's expanded rescue of insurer American International Group Inc. The Dow Jones Industrial Average decreased 0.9 percent after earlier gaining as much as 2.4 percent
China's stimulus plan, equivalent to almost a fifth of last year's gross domestic product, was announced yesterday as major export markets slumped. Japan will contract 0.2 percent next year, the U.S. by 0.7 percent and the euro area 0.5 percent, while China will expand 8.5 percent, the International Monetary Fund said last week.
The Group of 20 industrial and emerging nations, meeting yesterday in Sao Paulo, said they're ready to act ``urgently'' to support global growth. The group called on countries to cut interest rates and raise spending to combat the threat of a global recession. The leaders of the industrial and emerging countries, due to gather Nov. 14 and 15 in Washington, will consider steps ranging from raising bank-capital standards to regulating hedge funds.
Gains in the euro may be curbed after European Central Bank President Jean-Claude Trichet said at a press conference in Sao Paulo that receding inflation may allow central banks to further reduce interest rates to tackle the economic slowdown.
``There's talk of more ECB rate cuts, given the pessimistic outlook on Europe's economies,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The medium- to long-term downtrend for the euro is likely to persist.''
Traders increased bets the ECB will reduce its 3.25 percent rate in the first quarter of next year.