The euro weakened against the dollar, set for its firstback-to-back annual decline versus the greenback since 2001, onconcern Europe's debt crisis will weigh on the region's economicgrowth.

The 17-nation currency fell for a sixth day against the yen, itslongest losing streak in a year, before a report next week thateconomists said will confirm European manufacturing shrank for afifth month. The Australian and New Zealand dollars rose as stocksgained before reports forecast to show the U.S. economy isrecovering. China's yuan climbed to a 17-year high on signs thecentral bank favors the currency's appreciation to prevent capitaloutflows.

“The euro is weaker as the focus is very much on Europe,” saidPeter Rosenstreich, chief currency analyst at Swissquote Bank SA inGeneva. “The backdrop is still the euro-zone debt crisis andconcerns about growth. The dark clouds are getting darker. We'reseeing a death by a thousand cuts.”

The euro weakened 0.3 percent to $1.2920 at 9:36 a.m. in London,extending this year's decline to 3.5 percent. The common currencyfell 0.5 percent to 100.15 yen after dropping to 100.06 yenyesterday, the weakest level since June 2001. The euro has slid 7.8percent versus Japan's currency this year. The dollar was littlechanged at 77.53 yen.

A gauge of euro-region manufacturing was 46.9 in December from46.4 the previous month, according to economists surveyed byBloomberg News before Markit Economics releases the data on Jan. 2.A reading below 50 indicates contraction.

“We've been reasonably negative on the euro,” said MichaelTurner, a fixed-income and currency strategist at Royal Bank ofCanada in Sydney. “The euro area's probably in a mild recessionalready.”

Two years of summits have failed to contain a European debtcrisis that has led to bailouts of Greece, Ireland and Portugal andnow threatens Italy and Spain.

French President Nicolas Sarkozy will go to Berlin on Jan. 9 toresume talks with German Chancellor Angela Merkel on ending thedebt crisis, an official familiar with the matter said. The leadersaim to complete revisions to Europe's fiscal rulebook by March,following decisions made at a Dec. 9 summit and are reassessingplans to cap the overall lending of their permanent rescue facilityat 500 billion euros.

The euro has weakened 1.9 percent this year, according toBloomberg Correlation-Weighted Indexes, which track 10developed-nation currencies. The yen was the best performer, rising5.1 percent, and the dollar advanced 1.7 percent.

Aussie, Kiwi

The Australian and New Zealand dollars rose for a second day onstocks gains and amid optimism a recovery in the U.S. economy willboost demand for higher-yielding assets.

The MSCI Asia Pacific Index of shares climbed 0.4 percent andthe Stoxx Europe 600 Index rose 0.1 percent.

The Institute for Supply Management's factory index, a gauge ofU.S. manufacturing, rose to 53.2 in December from 52.7 in November,a Bloomberg survey showed before the Jan. 3 report. Readings above50 indicate expansion. Growth in the world's biggest economy willquicken to 2.1 percent in 2012 from 1.8 percent this year,according to a separate Bloomberg survey.

Riskier assets will rise “if we can confirm that the U.S.economy is on a recovery path from the economic data next week,”said Marito Ueda, senior managing director in Tokyo at FX PrimeCorp., a currency margin company.

The so-called Aussie, advanced 0.2 percent to $1.0152, and NewZealand's currency gained 0.1 percent to 77.20 U.S. cents.

Chinese Yuan

The yuan advanced for a third day as the central bank set itsreference rate 0.2 percent stronger at 6.3009 against thegreenback, the highest level since a dollar peg ended in 2005.

Hong Lei, a spokesman for the foreign ministry, said on Dec. 28China will continue to push for exchange-rate flexibility. Chinesemanufacturing shrank less this month than in November, data showedtoday.

“The fixing may break through the key 6.3 level on the firsttrading day after the holiday,” following the spot rate, said LiuDongliang, a senior analyst in Shenzhen at China Merchants Bank Co.“The yuan may appreciate about 3 percent at most next year.”

The yuan gained 0.4 percent to 6.2940 per dollar, the strongestsince the country unified official and market exchange rates at theend of 1993.

Bloomberg News

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