Euro gains on speculation leaders acting to resolve debt crisis

Aug. 16 (Bloomberg) -- The euro strengthened against all of but one of its most-traded counterparts as German Chancellor Angela Merkel reiterated her commitment to working with the European Central Bank to resolve the region’s financial turmoil.

The shared currency gained earlier after Medley Global Advisors said Spain will request a bailout that will allow the ECB to buy the nation’s debt to help reduce surging borrowing costs. The greenback climbed for a fourth day against the yen as Treasury yields at three-month highs boosted the allure of U.S. dollar-denominated assets. The pound strengthened against most of its major peers after U.K. retail sales unexpectedly increased last month.

“Merkel’s comments pushed the euro near session highs versus the euro and the yen,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview.

The euro rose 0.6 percent to $1.2364 at 3:59 p.m. New York time. The 17-nation shared currency added 1 percent to 98.07 yen. The dollar rose 0.4 percent to 79.28 yen after reaching 79.41 yen, the strongest level since July 12.

The difference between the yield on the 10-year U.S. benchmark and a similar maturity Japanese security widened to 100 basis points yesterday, the most since May 10. It was at 97 basis points today. The yield on the 10-year Treasury note touched 1.86 percent, the highest since May 11.

The dollar is poised to test resistance at 79.80 yen and could reach 80.50 to 80.60, Cilline Bain, a London-based technical analyst at Credit Suisse Group AG, wrote today in a note to clients.

‘In Line’

Spain will apply for aid at a meeting of finance ministers and central bank governors next month, allowing the ECB to buy Spanish government debt in the secondary market once approval is won, according to a Medley report Bloomberg News obtained. Medley officials weren’t immediately available to comment.

The report “reminded everybody that in their view the Spaniards will eventually ask for a bailout, and with a bailout will likely come some ECB buying, which is likely to smack bond yields,” Thomas Molloy, chief dealer at FX Solutions LLC, an online currency-trading company in Saddle River, New Jersey, said in a telephone interview.

Merkel said the European Central Bank’s insistence on conditionality in return for help to lower borrowing costs in indebted countries matches Germany’s priorities to end the crisis in the euro region.

“The ECB is completely in line with what we’ve said all along,” Merkel told reporters in Ottawa today at a joint press conference with Canadian Prime Minister Stephen Harper.

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