Euro Rallies as China Denies Review of Holdings, Stocks Advance

The euro rose for the first time in four days against the dollar after China’s foreign-exchange regulator denied speculation it’s reviewing its euro-denominated assets, damping concern the European debt crisis will escalate.

The euro also strengthened amid bets that its 14 percent drop this year was excessive. The currency’s 14-day relative strength index fell yesterday to a threshold that some traders see as a sign it may be poised to reverse course. The yen weakened against all 16 major peers as signs that growth in Asia-Pacific economies are gathering momentum curbed demand for safer assets.

“Investors, after reducing risk exposure, feel more comfortable now about the sovereign risk,” said David Deddouche, a currency strategist at Societe Generale SA in Paris. “So far in most people’s mind, it’s a European story, and the risk reduction is sufficient.”

The euro appreciated to $1.2275 as of 10:34 a.m. in London, from $1.2178 in New York yesterday, after dropping to $1.2154, close to the four-year low $1.2144 on May 19. The yen weakened to 111.02 per euro, from 109.47. The dollar advanced to 90.43 yen, from 89.92.

The euro may strengthen to $1.2850 if short-term traders end bets on the currency’s decline, Deddouche said. It will fall back to $1.15 in coming months on a lack of concerted efforts by global central banks to bolster the 16-nation currency, he said. >>