Apr 12, 2012 -- The euro strengthened from a seven- week low against the yen as Spain’s bonds climbed after a board member of the European Central Bank indicated it may buy the nation’s debt to reduce borrowing costs.

Europe’s shared currency gained versus the dollar after Italy sold 11 billion euros ($14.4 billion) of bills, meeting the target for the auction. The yen weakened against all but one of its 16 most-traded peers amid speculation the Bank of Japan will add to monetary easing later this month. New Zealand’s dollar, nicknamed the kiwi, rallied after the nation’s business confidence improved in the first quarter.

“The euro got a boost from Spanish bonds rebounding,” said Daniel Hwang, senior currency strategist for Gain Capital Group LLC in New York. “This reaction we’re seeing today is more consolidation ahead of the next major event. We’ll see minor euro flare-ups based on news flow, negative or positive.”

The euro advanced 0.5 percent to 106 yen at 5 p.m. New York time, after falling earlier to 105.45 yen, the weakest since Feb. 22. Europe’s shared currency rose 0.2 percent to $1.3110, after reaching $1.3033 on April 9, the lowest since March 15. The yen declined 0.2 percent to 80.86 per dollar.

The Standard & Poor’s 500 Index rose 0.7 percent, and the MSCI World Index of equities gained 0.6 percent.

Kiwi Optimism
New Zealand’s dollar strengthened 0.4 percent to 81.81 U.S. cents and jumped 0.6 percent to 66.16 yen. A net 13 percent of 797 companies surveyed expect the economy will improve over the next six months, from zero percent in the fourth-quarter survey, the New Zealand Institute of Economic Research Inc. said in Wellington.

Australia’s dollar rose the most among the greenback’s major peers, boosted by demand for higher-yielding assets. The Aussie advanced 0.5 percent to $1.0300.

The U.S. currency remained lower against most major peers after the Federal Reserve released a report that said the economy maintained its expansion in all 12 of the central bank’s regions. Manufacturing, hiring and retail sales showed signs of strength in the face of higher fuel prices, it said.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the currency against those of six major trading partners, was 0.1 percent weaker at 79.753 after earlier touching 79.508, the lowest level since April 4.

Fed Holding Off
Policy makers will hold off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its target, according to minutes of the Fed’s March 13 policy meeting released last week.

The central bank bought $2.3 trillion of securities in two rounds of so-called quantitative easing from December 2008 to June 2011 to support the economy, and it has pledged to keep interest rates low through late 2014.

“Our house view is that there won’t be any Fed easing in the sort of unsterilized sense through buying outright Treasuries,” Chris Walker, a currency strategist at UBS AG in London, said in a Bloomberg Radio interview on “Bloomberg - The First Word” with Ken Prewitt. “We won’t have this dollar- debasing story which we’ve had in previous years, so we remain moderately bullish dollars.”

The yield on Spain’s 10-year bond fell from the highest since Dec. 12. The rate has jumped almost 1 percentage point since March 2, when Prime Minister Mariano Rajoy said the country would miss its 2012 deficit goal approved by the European Union.

‘Nervous’ Markets
“Spain shows the markets remain nervous,” the ECB Executive Board member Benoit Coeure said at an event in Paris today. “Will the ECB intervene? We have an instrument, the securities markets program, which hasn’t been used recently but it still exists.”

The ECB probably won’t rush into the Spanish bond market, Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. said in a Bloomberg Television interview with Margaret Brennan.

“For now it’s too early for them to try a new policy step,” Nordvig said. “We’ve been trading short euro against the yen, and we took some profits on that.” A short position is a bet an asset will fall.

If Europe’s shared currency breaks below $1.3033, it may weaken to $1.2975, Ralf Umlauf, head of floor research at Helaba Landesbank Hessen-Thueringen in Frankfurt, wrote in a note to investors.

The yen strengthened 2.4 percent over the past week, the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The euro was little changed, and the dollar rose 0.3 percent.

Japan Policy
Bank of Japan (8301) policy makers yesterday kept their key interest rate and asset-purchase plan unchanged, the second straight meeting without a policy shift. They next announce a policy decision on April 27.

Governor Masaaki Shirakawa and his board unexpectedly expanded bond purchases by 10 trillion yen on Feb. 14 while setting an inflation goal of 1 percent. Nomura Holdings Inc., SMBC Nikko Securities Inc. and NLI Research Institute Ltd. expect the BOJ to expand the program at the next meeting to help meet the price target.

“There’s definitely a reasonable chance” the BOJ will do more later this month, said Sacha Tihanyi, a senior currency strategist in Hong Kong at Scotiabank, a unit of Bank of Nova Scotia. (BNS) Monetary easing by Japan’s central bank “fundamentally undermines the yen,” he said.

Britain’s pound strengthened after a report showed U.K. retail sales rose in March. It advanced 0.3 percent to $1.5907 and climbed as much as 0.5 percent, the most since March 30.

Retail sales at U.K. stores open at least 12 months, measured by value, gained 1.3 percent from a year earlier, after sliding 0.3 percent in February, the London-based British Retail Consortium said today.