NEW YORK (Bloomberg) — The yen rose, marking weekly gains against the dollar and the euro, as signs of a deepening global economic slump prompted investors to pare holdings of higher-yielding assets funded in Japan.

Japan's currency also climbed last week against the Australian and New Zealand dollars on speculation a Group of 20 nations summit starting today will fail to reach a consensus on resolving the credit crisis. The euro headed for a weekly drop after a government report showed Europe's economy fell into its first recession in 15 years in the third quarter, paving the way for deeper cuts to interest rates.

"This is a difficult environment for risky assets so there's still upside for the yen in coming weeks," said Marcus Hettinger, a currency strategist in Zurich at Credit Suisse Group. "The yen is still undervalued. It is being supported by expectations that interest rates will come down globally and in Japan there is less scope for lower interest rates because they are already very low."

The yen typically rises when demand falls for so-called carry trades, where investors borrow in currencies with low interest rates and buy assets in nations with higher rates. Benchmark rates are 0.3 percent in Japan, 1 percent in the U.S., 5.25 percent in Australia and 6.5 percent in New Zealand.

The yen rose 1.1 percent versus the dollar last week, its biggest gain since October 24. It advanced 1.3 percent against the euro, 4.1 percent versus the Australian dollar and 6.1 percent versus the New Zealand dollar last week.

US president George W. Bush last week urged leaders of the world's biggest economies not to abandon free-market capitalism following the seizure in credit markets. G-20 leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the US for failing to rein in investors and speculators.

Leaders of G-20 countries gather in Washington to debate proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks after financial institutions worldwide lost $958 billion on securities tied to US mortgages.

Volatility implied by dollar-yen options expiring in one month was last at 23.11 percent, from an almost two-week high of 28.55 percent reached last week. Gains in volatility, a measure of expectations for future currency moves, may discourage carry trades as it makes profits harder to predict.

"No one is betting on volatility going down," said Shinichi Takasaka, manager of foreign exchange and financial products trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan's largest publicly listed bank. "I don't see any practical plan coming out of the G-20. That's part of the reason why the yen is rising."

The yen was also buoyed on speculation its 2.7 percent slide against the dollar and 4.8 percent tumble against the euro on Thursday was excessive. US stocks rallied the most in two weeks, sparking the currency's decline.

The euro fell 1.3 percent last week against the yen, while the pound slid 5 percent versus the greenback on growing evidence policymakers in Europe and the UK will lower borrowing costs.

Gross domestic product in the 15 euro nations shrank 0.2 percent from the previous three months, when it also contracted 0.2 percent, the European Union's Luxembourg-based statistics office said today.

The two quarters of contraction — the result of this year's surges in the cost of credit, the euro and oil prices — mark the first recession since the single currency was introduced almost a decade ago.