By Ron Harui and Yasuhiko Seki
Feb. 13 (Bloomberg) — The dollar headed for a weekly advance against the euro and British pound on speculation a U.S. package to end the recession will fall short, spurring demand for the relative safety of the greenback and U.S. Treasuries.

The yen was set for its first weekly gain versus the dollar in three weeks on speculation Japanese investors will repatriate earnings from U.S. government bond payments. The U.S. currency may rise for a fourth day versus the euro before a report that economists say will show the 16-nation region shrank the most in 13 years, prompting traders to add to bets for more European Central Bank interest-rate cuts next month.

“Risk-aversion will not fade unless we know more concrete details of the U.S. plans,” said Seiya Nakajima,chief economist at Japanese trading house Itochu Corp. in Tokyo. “This will keep interest in safe havens alive.”
The dollar traded at $1.2880 per euro at 10:49 a.m. in Tokyo from $1.2861 late in New York yesterday, when it touched $1.2722, the strongest level since Feb. 2. The yen traded at 117.01 versus the euro from 116.95. The U.S. currency traded at 90.83 yen from 90.94 yen.

A U.S. economic stimulus bill was headed for passage in Congress after lawmakers agreed on $789 billion to stem the recession through a mix of government spending and tax cuts. Senate Majority Leader Harry Reid, a Nevada Democrat, said the House will vote today on the bill.
U.S. Treasury Secretary Timothy Geithner,speaking on Feb. 11 before the Senate Budget Committee, defended his strategy of taking time to work out the details of a separate bank rescue to shore up the financial industry. “We’re going to do this carefully,” he said.

G-7 Meeting
Finance ministers and central bankers from the Group of Seven major industrial nations meet in Rome today and tomorrow. They plan to discuss exchange-rate developments, a U.S. Treasury official told reporters on Feb. 11 in Washington on condition of anonymity, declining to discuss specific currencies.
“The G-7 is not likely to discuss currency-market intervention,” Itochu’s Nakajima said. “Given the relatively stable dollar, the G-7 statement is not expected to single out a specific currency.”

The euro may weaken on speculation gross domestic product contracted 1.3 percent in the fourth quarter from the previous three months, the most since June 1995 when Bloomberg began compiling the data, according to a survey of economists. The European Union’s statistics office will release the numbers at 11 a.m. in Luxembourg.

‘Already Under Pressure’
“A stream of European data including the fourth-quarter GDP will be released, and downside surprises are likely to be common place,” analysts led by Hans-Guenter Redeker,London-based global head of foreign-exchange strategy at BNP Paribas SA, wrote in a research note yesterday. “The euro is already under pressure.”

BNP Paribas forecasts the euro will decline to $1.20 and to 94 yen by the end of June.
Investors added to bets the ECB will reduce the 2 percent benchmark rate at its March 5 meeting, with the yield on the three-month Euribor interest-rate futures contract due in March falling to 1.695 percent yesterday.
Losses in the yen may be limited on speculation Japanese investors will bring back home earnings on overseas assets before Japan’s fiscal year ends on March 31.

The U.S. Treasury pays $45.5 billion in coupon and principal on debt on Feb. 17, according to Stone & McCarthy Research Associates in Skillman, New Jersey.
“There are strong market fears that Japanese investors will repatriate funds,” said Masafumi Yamamoto,head of foreign- exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader. “The risk is high that the yen will rise and the dollar will fall.”

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net ,Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
Last Updated: February 12, 2009 21:12 EST

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