By Mari Murayama and Kanako Chiba
Tokyo, Nov. 8 (Bloomberg) -- The euro, little changed, may extend yesterday's gains after a drop in German manufacturing orders spurred optimism the European Central Bank will lower interest rates today by a wider margin than previously expected.
All but one of the 24 economists surveyed by Bloomberg News on Friday predicted a reduction of at least 25 basis points from 3.75 percent. Speculation the bank would cut 50 basis points increased after a report yesterday showed German manufacturing orders in September had their biggest fall in six years.
The euro traded at 89.67 U.S. cents per euro from 89.76 in late New York trading yesterday, when it rose 0.32 percent, the biggest gain since Oct. 29. Against the yen, it bought 108.45 from 108.69.
``Signs of a slowdown in Germany may persuade ECB authorities to resort to a 50 basis point cut,'' said Kenji Takei, a currency sales vice president at the Tokyo branch of Societe Generale SA. ``That's good for the euro, based on the perception that appropriate monetary measures will benefit the region's economy.''
The yen briefly dropped against the dollar as some Japanese bank stocks tumbled, fanning concern about the strength of the nation's banking system.
More Pessimistic
The ECB's rate reduction would be the fourth this year compared with the Federal Reserve's 10 rate cuts, the latest of which on Tuesday pulled the key rate down to 2 percent.
Europe's 12-nation currency weakened as the central bank decided to leave rates unchanged at its last three meetings amid signs of a slowing economy in the region.
Since then, reports showed German unemployment had its biggest jump in three years and consumers and executives throughout the region grew more pessimistic last month.
``We expect a recession and we may be in the middle of it already,'' Heinrich Bohlmann, finance director at Bremer Woll- Kaemmerei AG, a German wool-processor, said in an interview. ``The ECB should lower rates.''
The euro yesterday rose on concern the Federal Reserve's 10 interest-rate cuts this year will fail to prevent a U.S. recession. The same sentiment could weigh on the dollar today, traders said.
The Fed said Tuesday in its statement ``the risks are weighted mainly toward'' weakness in the economy ``for the foreseeable future.''
The U.S. economy shrank at a 0.4 percent annual rate in the third quarter and is expected to contract in the fourth. The euro region's economy grew 0.5 percent in the second quarter. The European Union's statistics office will publish a third estimate of euro-zone second-quarter GDP at 12 p.m. Brussels time.
Yen
The yen briefly fell after Asahi Bank Ltd. stock fell as much as 33 percent on investor concern Japan's fifth-largest lender may fail in its plan to form a holding company with Osaka-based Daiwa Bank Ltd. and two other regional banks, in a move to survive in an industry now operating under a stricter standard for wiping out their bad loans. That could deteriorate the two banks' lending capability, which may harm the economy.
The Japanese currency rebounded after dropping as low as 121.38 per dollar as the bank said in a statement the merger with Daiwa will be completed in March as scheduled. It recently traded at 120.96 from 121.03 in New York.
In other trading, the dollar was unchanged at 1.6360 Swiss francs. The British pound was quoted at $1.4639, up from $1.4636 yesterday.