Dollar Weakens on Speculation of Fed Debt-Plan Increase; Spain Bonds Drop

The dollar depreciated to a three- week low against the euro on speculation the Federal Reserve may buy more bonds to bolster the economy, while stocks and U.S. futures were little changed. Copper and cotton gained as Spanish and Portuguese bonds dropped.

The dollar weakened to $1.3461 per euro at 10:31 a.m. in London, from $1.3391 yesterday. Taiwan’s dollar touched a 13- year high versus the U.S. currency. The extra yield investors demand to hold Spanish 10-year bonds instead of benchmark German debt widened to a two-week high after yields increased at a bill auction. Cotton jumped 3.4 percent and copper rose 0.2 percent. Futures on the Standard & Poor’s 500 Index fluctuated between gains and losses of less than 0.2 percent and the Stoxx Europe 600 Index fell 0.2 percent following a six-day gain.

Fed policy makers meeting today may signal a willingness to boost debt purchases beyond the $600 billion already announced to spur job growth. Federal Reserve Chairman Ben S. Bernanke told CBS Corp.’s “60 Minutes” on Dec. 5 that the recovery may not be self-sustaining and more bond buying is “certainly possible.” The European Central Bank increased its bond purchases to 2.67 billion euros ($3.6 billion) last week, the highest in 23 weeks.

The dollar is down because of “the expectation for the Fed to reiterate its enthusiasm for future quantitative easing measures,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. “The surprise to the forex market would be if the Fed goes quiet on further QE measures ahead.”

Taiwan Dollar

The dollar depreciated as much as 0.8 percent against the euro, touching the weakest level since Nov. 23. It slipped 0.1 percent to 83.28 yen. Taiwan’s dollar strengthened as much as 2.3 percent against the U.S. currency, reaching its highest level since October 1997. The yield on 10-year U.S. Treasuries climbed two basis points to 3.29 percent.

The Fed has kept its target rate for overnight loans between banks at a record-low range of zero to 0.25 percent since December 2008. Moody’s Investors Service Inc. yesterday said President Barack Obama’s agreement to extend tax cuts raises the chance of a negative outlook for the U.S.’s Aaa credit rating.

The yield on the 10-year Spanish bond rose nine basis points to 5.58 percent after the nation raised less than its 3 billion-euro maximum target at a sale of 12-month and 18-month bills, and yields increased. The difference in yield, or spread, to benchmark German bunds increased eight basis points to 256 basis points, the most since Dec. 1. Italian 10-year yields climbed two basis points to 4.61 percent as Prime Minister Silvio Berlusconi won a confidence vote in the Senate before facing another vote in the lower house.

Swaps Decline

The Markit iTraxx Financial Index of credit-default swaps insuring the junior debt of 25 banks and insurers fell 8.5 basis points to 317.5, according to JPMorgan Chase & Co. The gauge climbed this week to the highest level since April 2009 on speculation bondholders will have to share in bank bailout costs.

Cotton increased 5 cents, the maximum allowed by ICE Futures U.S. in New York, to $1.4597 a pound and copper gained as much as $35 to $9,260 a metric ton on speculation demand will increase in China, the largest buyer of both commodities. Orange-juice futures yesterday jumped to a three-year high on forecasts for cold in Florida, the world’s largest citrus producer after Brazil. Trading opens at 1 p.m. London time.

U.S. Index Futures

Futures on the S&P 500 expiring in March rose less than 0.1 percent before a report that may show U.S. retail sales advanced 0.6 percent in November after climbing 1.2 percent in October, according to the median estimate of economists in a Bloomberg survey. HCP Inc. may be active after the company, the biggest U.S. health-care real estate investment trust by market value, agreed to pay $6.1 billion for 338 nursing homes from HCR ManorCare Inc.

Two stocks fell for each one that gained in Europe’s Stoxx 600 even after the ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations, which aims to predict developments six months ahead, increased to 4.3 in December from 1.8 last month, exceeding economists’ forecasts. Outokumpu Oyj sank 6.1 percent after the Finnish stainless-steel maker said fourth-quarter operating profit will be “clearly negative.”

The MSCI Emerging Markets Index rose for a second day, climbing 0.5 percent. Shipbuilders led the advance after South Korea’s Hyundai Heavy Industries Co., the world’s largest producer, and STX 

Offshore & Shipbuilding Co. announced orders worth about $1.6 billion.

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