Oct. 28 — The yen fell the most against the euro since January 2001 and dropped versus the dollar as a rebound in global stocks encouraged investors to reduce bets against higher-yielding currencies.

The currency declined versus the Australian and New Zealand dollars on speculation carry trades will get a boost and Japan’s central bank will sell the yen for the first time in four years to help exporters. South Africa’s rand, Mexico’s peso and Brazil’s real advanced versus the dollar on reduced aversion to higher-yielding, emerging-market assets.

“Some players, enticed by a positive reading in stocks, are jumping in to briefly trade on risk,” said Adam Fazio, a currency strategist at CIBC World Markets Inc. in New York. “Intervention by the Japanese is a wild card.”

The yen slid 3.9 percent to 120.46 per euro at 1:13 p.m. in New York, from 115.92 yesterday, when it touched 113.64, the strongest level in more than six years. The yen fell 4 percent to 96.49 per dollar from 92.78. It reached 90.93 on Oct. 24, the strongest since August 1995. The euro dropped 0.1 percent to $1.2478 after touching $1.2330, the weakest since April 2006.

Japan’s currency dropped 8.8 percent to 60.71 against the Aussie and 6.1 percent to 53.28 versus the New Zealand dollar on speculation investors will revive trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s 0.5 percent target lending rate compares with 3.75 percent in Europe, 6 percent in Australia and 6.5 percent in New Zealand.

Stock Gains

The Standard & Poor’s 500 Index increased 2.9 percent after Japan’s Nikkei 225 Stock Average rebounded from the lowest level in 26 years. The S&P 500 fell yesterday to the lowest level since March 2003 on concern the credit crunch will cause the global economic slump to deepen.

In a sign financial institutions are becoming less nervous about extending loans, the London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell 0.04 percentage point to 3.47 percent, its 12th straight drop, according to the British Bankers’ Association. The Federal Reserve began buying short-term corporate debt yesterday to revive lending markets.

“We’re seeing a little bit of confidence shored up with the Fed commercial paper facility opening up,” said Jessica Hoversen, a fixed-income and currency analyst at MF Global Ltd. in Chicago.

The yen pared losses against the dollar after the Conference Board, a New York-based research group, said its consumer confidence index decreased to 38, the lowest reading since monthly records began in 1967.

Yen This Month

Japan’s currency has jumped 25 percent versus the euro, 42 percent against the Australian dollar and 36 percent versus the New Zealand dollar this month as the global credit crisis and a stock rout erased more than $12 trillion in equity value.

A surge in the yen is eroding Japanese exporters’ overseas income. Honda Motor Co., Japan’s second-largest automaker, cut its operating profit forecast today for the year ended in March by 13 percent to 550 billion yen ($5.8 billion).

“At this point, it would be bad to bet against intervention” by the Bank of Japan, said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, in an interview on Bloomberg Television. “Currencies are being driven by risk appetite and anxiety in the market.”

Japan’s Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo that abrupt increases in currency volatility are “undesirable.” Finance Minister Shoichi Nakagawa said yesterday the government is ready to act if needed.

`Purely Japanese’

French Finance Minister Christine Lagarde said yesterday any intervention would be “purely Japanese” after the Group of Seven issued an unscheduled statement that it was concerned “about the recent excessive volatility” in the yen.

Unilateral intervention by the Japanese authorities may limit the effectiveness of the action in currency markets, wrote Stephen Jen, global head of currency research at Morgan Stanley in London, in a research note yesterday.

“I’m not sure how effective such interventions will be,” Jen wrote. “My best guess is that they will help to temper the flows but not reverse the trend.”

The Aussie appreciated 4.7 percent to 62.96 U.S. cents after touching 60.09 cents yesterday, the weakest level since April 2003. The Reserve Bank of Australia bought its currency for a third day to stem losses.

The real rose 3.1 percent to 2.1800 against the dollar, the peso advanced 1.3 percent to 13.3525 and the rand increased 3.6 percent to 10.5950 on demand for assets in emerging markets.

The euro may weaken to $1.22 this week as the “worries over Europe’s economy are heightening,” said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank AG in Tokyo. European Central Bank President Jean-Claude Trichet said yesterday policy makers may cut interest rates next week.

The Fed will lower its 1.5 percent target lending rate by a half-percentage point at the conclusion of its two-day policy meeting tomorrow, according to the median forecast of 65 economists surveyed by Bloomberg News.