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Euro Rises Second Day on German Sentiment; Swiss Franc Weakens

Dec. 11 (Bloomberg) -- The euro strengthened for a second day against the dollar after a German report showed investor confidence jumped in December and as Spain sold more than its target amount at a bill auction.

The 17-nation currency rose versus all except one of its 16 major counterparts as signs Europe’s largest economy is improving boosted speculation the region’s debt crisis will be contained. The Dollar Index fell the most in a week amid bets the Federal Reserve will expand monetary stimulus at a two-day meeting starting today. The Swiss franc fell against the euro as UBS AG joined Credit Suisse Group AG in saying it will charge bank clients for deposits made in the currency.

“A combination of forces, including the ZEW index” are boosting the euro, said Audrey Childe-Freeman, head of foreign- exchange strategy at Bank of Montreal in London. “There’s a broadly more bearish dollar sentiment on the looming Fed meeting. I believe that it is just a matter of time before we test $1.30 again.”

The euro gained 0.4 percent to $1.2987 at 7:45 a.m. New York time after rising to $1.2997, the highest since Dec. 6. The common currency appreciated 0.5 percent to 107.08 yen. The dollar was little changed at 82.46 yen.

The Dollar Index, which tracks the greenback versus the currencies of six U.S. trading partners, fell 0.2 percent to 80.136 after sliding 0.3 percent, the biggest drop since Dec. 4.

The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations climbed to 6.9 this month from minus 15.7 in November. Economists forecast a gain to minus 11.5, according to a Bloomberg News survey.

Spain Auction

Spain sold a combined 3.89 billion euros of 12- and 18- month bills, the central bank said. That compared with its maximum target of 3.5 billion euros. It sold the 12-month securities at an average yield of 2.556 percent, compared with 2.797 percent on Nov. 20.

The euro has gained 1 percent during the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar declined 1.3 percent and the yen slid 5.3 percent.

The dollar fell against most of its major peers before the Federal Open Market Committee begins its last meeting for 2012 today. The central bank will increase accommodation by announcing $45 billion in monthly Treasury buying that will push its balance sheet almost to $4 trillion, according to a Bloomberg survey of economists.

Bond Buying

The purchases would supplement the Fed’s $40 billion a month of mortgage-bond buying, and follow the expiration at year-end of the so-called Operation Twist program. The central bank pumped $2.3 trillion into the financial system from 2008 to 2011 in two rounds of the stimulus.

“The Fed is going to act this week, which is keeping pressure on the dollar,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The weakness of the dollar is keeping a floor under euro-dollar, limiting any further fallout that may come from Italy or the euro zone.”

The franc weakened after UBS, Switzerland’s biggest bank, said it will start charging financial institutional clients for cash balances held in francs from Dec. 21. The amounts will be communicated individually to clients within days the bank said, adding that “we encourage our customers to keep their Swiss franc balances as low as possible.”

The franc dropped last week as Credit Suisse was said to set a negative rate of as much as minus 1 percent on balances held in the currency.

“Now that UBS are acting, other Swiss banks may take the measures,” said Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London. “It’s something that markets will be more conscious of. The franc is being pressed lower.”

The franc declined 0.3 percent to 1.2112 per euro after depreciating to 1.2168 on Dec. 5, the weakest since Sept. 17.

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