Dollar Rebounds on China Stimulus Concern, Asia Stock Decline

London - The dollar advanced after China’s economic growth missed some analysts’ estimates and speculation mounted the nation will pare stimulus spending, spurring demand for the U.S. currency as a refuge.

The dollar rose the most against higher-yielding currencies such as the South African rand and South Korean won after China reported gross domestic product expanded at the fastest pace in a year and said inflation pressures are increasing. The Australian and New Zealand dollars retreated from the strongest levels in more than 14 months as stocks declined.

China’s data “is consistent with an easing off of the economic stimulus as we go forward, which you could argue is occurring already to some extent,” said Steven Barrow, head of Group of 10 research at Standard Bank Plc in London. “The dollar is taking its cue from stocks.”

The dollar advanced to $1.4983 per euro at 8:24 a.m. in London from $1.5016 in New York yesterday, when it touched $1.5046, the weakest level since August 2008. The U.S. currency was at $1.6600 per pound, from $1.6608 yesterday, when it slipped to $1.6637, the lowest level since Sept. 15. The yen weakened to 91.42 per dollar, from 90.97, and traded at 137.01 per euro, from 136.61.

Australia’s currency fell 0.9 percent to 92.08 cents from 92.92 cents yesterday, when it climbed to 93.29 cents, the most since August 2008. New Zealand’s dollar slid to 75.22 cents from 76.05 cents yesterday, when it advanced to 76.35 cents, the strongest since July 2008.

Stock Declines

The Nikkei 225 Stock Average dropped 0.7 percent and the MSCI Asia-Pacific Index of regional shares slid 1.1 percent. European stocks opened lower and U.S. stock index futures fell.

China’s gross domestic product expanded 8.9 percent in the third quarter, the nation’s statistics bureau said today. The median estimate among 34 economists surveyed by Bloomberg was for a 9 percent expansion.

“The markets were anticipating a stronger GDP figure, so they were disappointed,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest publicly traded bank. “This caused some buying back of the dollar and the yen.”

Inflationary expectations are increasing as prices rise month-on-month, statistics bureau spokesman Li Xiaochao said at a press briefing in Beijing. The government is paying “close attention” to the prospect of inflation, he said.

The dollar tends to gain in times of economic and financial turmoil due to its status as the world’s main reserve currency.

Swedish Krona

Sweden’s currency declined 0.2 percent to 6.8626 against the dollar and was little changed at 10.2736 per euro. The Stockholm-based Riksbank will probably keep the benchmark interest rate at a record low 0.25 percent today, according to all 26 economists in a Bloomberg survey.

The euro’s losses were tempered before a report that is forecast to show German business confidence improved. The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 the previous month, according to a separate survey. The Munich-based institute will release the report tomorrow.

European Central Bank council member Erkki Liikanen said on Finland’s YLE Radio Suomi this week the 16-nation euro-area economy is no longer weakening.

“The euro-zone’s economy appears to be recovering more quickly than what we’re seeing in the U.S. and Japan,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The euro will likely gain further.”

Won Falls

Traders maintained bets the ECB will keep its benchmark interest rate at 1 percent until the end of the first quarter next year. The implied yield on the three-month Euribor futures contract for March 2010 delivery was little changed at 1.07 percent.

The South Korean won declined for a second day against the dollar after Yonhap News said South Korea is studying measures to reduce currency volatility, citing government officials it didn’t identify.

Those steps may include caps on the amount of foreign- currency loans that Korean branches of overseas banks can take out from their parent companies, Yonhap said.

“Upside in the won to the end of the year is limited because of the government,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong.

The won fell 10.9 percent to 1,189.75 per dollar. The currency reached 1,155.05 on Oct. 15, the strongest level since September 2008.