By Candice Zachariahs
March 5 (Bloomberg) — The Australian and New Zealand dollars advanced to the highest in a week on speculation China will add to $585 billion of stimulus plans, raising demand for commodities that comprise a majority of the two nations’ exports.

Australia’s currency reached the strongest in two months against the yen after a Chinese manufacturing index climbed for a third month yesterday and commodities prices gained by the most this year. It pared gains after Australian home-building approvals unexpectedly fell in January for a seventh month, while economists had forecast a 1 percent gain.

“As well as the fiscal news there was some not too-bad data out of China which helped to reinforce the idea that perhaps the downtrend in the Chinese economy has stalled,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.

Australia’s currency rose 1.2 percent to 64.60 U.S. cents as of 11:48 a.m. in Sydney from 63.84 cents late in Asia yesterday and as much as 65.27 cents earlier, the highest since Feb. 27. The currency advanced 1.1 percent to 64.10 yen and earlier gained to 64.79, the most since Jan. 9.

New Zealand’s dollar gained 0.9 percent to 50.34 U.S. cents from 49.87 in Asia yesterday and rose as high as 50.78 cents, also the most since Feb. 27. It bought 49.96 yen from 49.56.

The Australian currency may rise towards 65.55 U.S. cents and New Zealand’s may gain to 51.30 U.S. cents, Hampton said.

Chinese Premier Wen Jiabao may announce a new stimulus package today, former statistics bureau head Li Deshui told reporters in Beijing yesterday, without giving further details.

Raw materials account for 60 percent of Australia’s exports while sales of commodities including lumber make up 70 percent of New Zealand’s overseas shipments. China is Australia’s second-biggest export market after Japan.

‘Bullish’ Signal

The Australian dollar bounced off its 55-day moving average on March 3 when it fell as low as 61.04 yen, Citigroup Inc. said in a note yesterday.

“A breach of trend and horizontal resistance at 64.30- 64.57 yen would be bullish,” wrote New York-based Tom Fitzpatrick and London-based Shyam Devani. The currency may rally toward the next resistance level at 68.25 yen, they said. Some traders use charts to indicate resistance levels where sell orders may be clustered.

Australia’s currency pared gains after government reports showed home-building approvals were weaker than forecast and the nation’s trade surplus widened by less than expected in January.

The number of permits granted to build or renovate houses and apartments declined 3.7 percent from December, the Bureau of Statistics said in Sydney today. The trade surplus expanded to A$970 million ($628 million) compared with a median estimate for A$1.1 billion, a separate report showed.

High Demand

Australia’s government raised A$1.1 billion ($712 million) in the first auction of short-term securities since October 2003 to fund extra spending aimed at supporting the domestic economy.

The government sold A$300 million of debt maturing on April 17 at an average weighted yield of 3.185 percent, with investors offering to buy 7.2 times the securities available, the Australian Office of Financial Management said today. It auctioned A$500 million of June 5 bills at 3.06 percent, with a so-called bid-to-cover ratio of 8.9 times, and A$300 million of securities due on Sept. 4 at 2.92 percent.

“The coverage ratios suggest that there’s a very high demand for these sorts of instruments in this environment,” said Tony Morriss, a senior markets strategist at Australia & New Zealand Banking Group Ltd. in Sydney.

Australian government bonds fell for a third day. The yield on 10-year notes added four basis points, or 0.04 percentage point, to 4.39 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 slipped 0.30, or A$3 per A$1,000 face amount, to 106.92.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.29 percent from 3.27 yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney atczachariahs2@bloomberg.net

Last Updated: March 4, 2009 20:14 EST

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