Nov. 20 (Bloomberg) -- The yen may gain for a second day against the dollar and the euro on speculation a plunge in U.S. stocks will prompt investors to sell higher-yielding assets and pay back low-cost loans in Japan's currency.

The yen also rose yesterday versus the Brazilian real and the South African rand on bets the deepening global economic slump will discourage carry trades. The pound appreciated against the euro as minutes of this month's Bank of England meeting indicated policy makers may be prepared to cut interest rates further to revive Britain's economy.

``The weak close on the equity markets in the U.S. is putting upward pressure on the yen, with risk dynamics at work,'' said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. ``It's quite clear the yen is going to outperform.''

The yen traded at 95.90 against the dollar as of 8:40 a.m. in Tokyo, after rising 1.4 percent yesterday. Japan's currency was at 119.68 versus the euro following a 2.4 percent gain. The dollar traded at $1.2482 per euro from $1.2489 yesterday.

Turkey's lira tumbled 4.3 percent to 1.7320 per dollar yesterday after the central bank reduced its benchmark interest rate by a half-percentage point to 16.25 percent. The lira slid to 1.7402 on Oct. 23, the weakest level since June 2006.

The Swiss franc dropped as much as 1 percent yesterday to 1.2145 against the dollar, the weakest level since September 2007, on signs the country's economy is entering a recession. Against the euro, the franc slid as much as 0.9 percent to 1.5328, the lowest since Oct. 21.

Yen Gains

The Japanese currency increased 4.9 percent to 40.08 against the Brazilian real and 4.1 percent to 9.1048 versus the rand yesterday on bets investors will unwind trades in which they get funds in a country with low borrowing costs and buy assets where returns are higher.

Japan's 0.3 percent target lending rate compares with 13.75 percent in Brazil and 12 percent in South Africa.

``It's risk aversion,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. ``There are no yen shorts entering the market. There's no one on the opposite side of the trade.'' A short is a bet an asset will fall.

The Standard & Poor's 500 Index dropped 6.1 percent yesterday to its lowest close since 2003 after government reports showed consumer prices fell the most on record and housing starts sank to an all-time low. The dollar erased its loss against the euro after the decline in equities accelerated, sparking renewed demand for the greenback as a haven.

Japan's currency reached a 13-year high of 90.93 per dollar last month, threatening exporters' earnings and reducing the value of the nation's U.S. government debt holdings.

Nissan's Profit

Nissan Motor Co., Japan's third-largest automaker, told the Wall Street Journal that profit in the second half will go to ``zero'' because of lower sales in the U.S. and a stronger yen. Japan, the second-largest foreign owner of Treasuries after China, reduced its holdings by $12.8 billion to $573.2 billion in September, its fourth reduction in the past six months.

``Among the major currencies, the yen is the most favored right now,'' said Michael Woolfolk, a senior currency strategist at Bank of New York Mellon Corp. in New York. ``Japanese investors are selling their stocks and bonds, buying their own currencies.''

Federal Reserve policy makers predicted last month the U.S. economy will contract through the middle of 2009, with some prepared to cut interest rates further in response, according to a record of their Oct. 28-29 meeting. The Fed lowered its benchmark interest rate to 1 percent, matching a half-century low, to avert the worst recession since World War II.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net.

Last Updated: November 19, 2008 19:03 EST