By Stanley White and Kosuke Goto
The currency also erased earlier losses after the Federal Reserve said it will offer direct loans to the two largest U.S. mortgage finance companies, easing concerns that confidence in housing and financial markets will worsen. The New Zealand dollar fell as a government report showed retail sales slid by the most in more than four years.
``This should prove to be dollar supportive,'' said Sean Callow, senior currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-biggest bank. ``The notion of the Treasury buying stakes in Freddie Mac and Fannie Mae has got to be great for their share prices. That's a big step toward easing concern that these mortgage lenders can get access to funds.''
The dollar traded at $1.5896 per euro at 9:32 a.m. in Tokyo, from an earlier low of $1.5971 and $1.5938 late in New York on July 11. The U.S. currency reached a record low of $1.6019 on April 24. It bought 106.58 yen from 106.28 yen at the end of last week. The euro was little changed at 169.38 yen after earlier reaching 169.75, the strongest level since the single currency was introduced in 1999.
The dollar may rise to $1.5820 to $1.5830 today, Callow forecast.
The New Zealand dollar was the weakest among the 16 most- traded currencies. It traded at 75.91 U.S. cents from 76.14 on July 11 as retail spending slumped 1.2 percent in May after increasing the same amount in April, adding to signs the economy has slipped into a recession.
Paulson Plan
Paulson proposed that Congress enact legislation giving the Treasury temporary authority to buy equity ``if needed'' in Fannie and Freddie, and to increase their lines of credit with the department from $2.25 billion each. The Fed authorized the companies to borrow directly from the New York Fed, in a step that could provide funding before the bill is passed.
Today's announcement came after Fannie Mae and Freddie Mac lost about half their value last week. Global banks and securities firms have reported losses of about $400 billion as the subprime mortgage market collapsed.
The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, rose to 72.113 from 72.096 on July 11, its first gain in four days. Against the Australian dollar, the U.S. currency advanced from a 25-year low of 97.16 cents reached July 11 to trade at 96.73 cents.
Mortgage Support
``The markets' initial reaction to Paulson's remarks was to buy the dollar,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., a unit of the U.K.'s third-biggest bank. ``This time he expressed some support for those two troubled mortgage firms, easing concerns about them.''
The dollar may move between 105.80 yen and 107 yen, and $1.5870 and $1.5970 a euro today, he said.
Futures traders decreased their bets that the euro will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 24,007 on July 8, compared with net longs of 27,683 a week earlier.
Bill Gross, manager of the world's biggest bond fund, turned bearish on the euro for the first time since the currency's inception in 1999.
Pimco and Euro
A growing number of the world's biggest investors say a slowdown in the region's economy may be more severe than in the U.S., forcing the European Central Bank to reverse this month's rate increase. By January, the euro will be lower against the dollar, yen and even the pound, according to the median estimate of strategists surveyed by Bloomberg.
``We might have hit a point where the euro doesn't have a lot to stand on,'' said Emanuele Ravano, co-head of European strategy in London for Gross's Pacific Investment Management Co., which runs the $129 billion Pimco Total Return Fund. ``The euro is ultimately very overvalued. It could be quite a bit lower at some point in time over the next couple of years.''
Gains in the dollar may be limited by speculation Fed Chairman Ben S. Bernanke will highlight risks to the economy in his semi-annual testimony on monetary policy before the Senate Banking Committee tomorrow.
``Bernanke will talk about inflation and the downside risk of the U.S economy,'' said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in Tokyo. ``With U.S. economic fundamentals deteriorating amid financial turmoil, the markets will be more fixated by his remarks on the slowing economy. This will lead to dollar-selling.''
The dollar may fall to $1.5990 a euro this week, she said.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net
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