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Dollar rises to 12-year high on speculation of rate increase

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(Bloomberg) — The dollar strengthened to a 12-year high against the yen as growing speculation the U.S. will raise interest rates widened the policy divergence with Japan. European stocks fell with U.S. equity-index futures, and Chinese shares slid the most in four months.

The dollar gained 0.4 percent to 124.20 yen at 8:34 a.m. in New York. The Stoxx Europe 600 Index declined 0.4 percent and Standard & Poor’s 500 Index futures slipped 0.2 percent. The Shanghai Composite Index tumbled 6.5 percent as brokerages tightened margin lending.

The yield on 10-year German bunds dropped three basis points to 0.52 percent. The pound declined and gilts rose after first-quarter U.K. economic growth missed analyst predictions for an upward revision.

The dollar has gained after Federal Reserve Chair Janet Yellen said last week she expects to raise borrowing costs this year if the economy meets her forecasts. U.S. jobless claims held below 300,000 for the 12th straight week after data on May 22 showed core inflation rose more than expected. Bank of Japan Governor Haruhiko Kuroda reiterated this week that he’ll adjust monetary policy if needed to meet his inflation targets.

“We’ve had pretty consistent upside surprises in U.S. data and the most important one was the U.S. core inflation reading which surprised significantly to the upside,” said Alvin T. Tan, a foreign-exchange strategist at Societe Generale SA in London. “It triggered dollar-buying because expectations for the Fed were pushed somewhat higher.”

Dollar climbs

The Bloomberg Dollar Spot Index rose 0.2 percent, paring some earlier gains. The dollar reached 124.39 yen, the most since December 2002. The pound dropped 0.5 percent to $1.5283 and the euro was little changed at $1.0903.

Jobless claims increased by 7,000 to 282,000 in the week ended May 23, a Labor Department report showed. The median forecast of 51 economists surveyed by Bloomberg called for 270,000. Readings this low typically coincide with healthy levels of hiring.

The Australian dollar weakened against all of its 16 major counterparts, sliding 0.7 percent to 76.74 U.S. cents, reaching a six-week low. The government said capital investments fell last quarter by twice as much as economists had estimated.

Austrian bonds rose with their German peers, sending the 10-year yield three basis points lower to 0.65 percent. The rate on gilts fell five basis points to 1.83 percent and Germany’s bund yields slid three basis points to 0.52 percent.

Spain’s 10-year bond yield rose two basis points to 1.83 percent and Portugal’s increased four basis points to 2.52 percent.

IMF deadline

French and German delegates at a meeting of Group of Seven finance chiefs in Dresden pushed back against Greek claims that an agreement over bailout funds is near, as the deadline approaches for International Monetary Fund payments next month.

“We can expect sentiment to swing back and forth until we really get to crunch time on Greece, and I don’t think we’ll get a deal until the very last day,” Allan von Mehren, chief analyst at Danske Bank A/S, said by phone from Copenhagen. “Markets will be quite volatile as everyone tries to read the signals.”

Commodity producers fell the most among Stoxx 600 industry groups. Tate & Lyle Plc slid 3.3 percent after forecasting pretax profit next year will be similar to this year’s.

Sports Direct International Plc gained 4.9 percent after announcing pretax earnings ahead of expectations. Kingfisher Plc rose 4.1 percent as retail profit was in line with estimates. Seadrill Ltd. gained 5.7 percent after reporting quarterly net income that beat projections.

S&P 500 E-mini futures expiring in June fell, indicating the index will slip for a third time in four days. Gains in technology shares on Wednesday sent the Nasdaq Composite Index to a record.

Margin debt

The Nikkei-225 Stock Average climbed 0.4 percent, posting its longest rising streak since 1988.

The MSCI Emerging Markets Index lost 0.7 percent, poised for the lowest close since April 7. The Hang Seng China Enterprises Index retreated 3.5 percent. Russia’s ruble slid 0.7 percent, extending its three-day decline to 4.5 percent.

Changjiang Securities Co. joined larger rivals GF Securities Co. and Haitong Securities Co. in increasing its margin requirement, the collateral put up by an investor when borrowing as brokerages tightened lending restrictions. Record growth in margin debt helped fuel a 125 percent gain in the Shanghai index over the past year.

The central bank drained tens of billions of yuan from the financial system by selling repurchase agreements to targeted financial institutions, The People’s Bank of China drained cash from the financial system, two people familiar with the matter also said. The PBOC didn’t respond to a request for comment.

World Cup

Qatar’s benchmark index fell 2.7 percent, extending its two-day retreat to 4.1 percent. Swiss officials said yesterday they’re investigating alleged money laundering related to the selection of the host countries for the next two World Cups, in Russia and the Gulf nation.

West Texas Intermediate crude was little changed at $57.47 a barrel after sinking 5.3 percent the past three trading days. U.S. inventories are forecast to fall by 2 million barrels, declining a fourth week, according to the median estimate before Energy Department data released Thursday. Brent oil rose 1.1 percent.

Aluminum for three-month delivery on the London Metal Exchange rose 1 percent, paring the biggest monthly drop in more than two years as stockpiles fell to a six-year low. Nickel gained for a second day, while copper rose the first time in four days. –With assistance from Cecile Vannucci, Paul Dobson, Andrew Reierson and Sofia Horta e Costa in London, Ramsey Al-Rikabi in Tokyo and Lukanyo Mnyanda in Edinburgh.