(Corrects to add dropped word in first paragraph)

March 24 (Bloomberg) -- The dollar rose to a six-week high against the yen in Asia on forecasts that durable goods orders rose in February, signaling increased spending may prompt the Federal Reserve to speed up rate increases.

The dollar also approached a five-week high versus the euro, extending gains this year to 4.5 percent, after a report yesterday showed consumer prices rose the most since 2002, fueling speculation the Fed will abandon its policy of gradual interest- rate increases. The Fed this week lifted its target rate a quarter- point for a seventh time since June, widening the gap over Europe and Japan.

``We're looking for the durable goods report to underscore the strength of the U.S. economy,'' said Tetsu Aikawa, a currency sales manager in Tokyo at UFJ Bank Ltd., a unit of Japan's fourth- largest lender. ``That means the Fed has a lot more room for raising interest rates, increasing the appeal of the dollar.''

Against the yen, the dollar rose to 106.37, the highest since Feb. 10, before trading at 106.29 at 10:14 a.m. in Tokyo from 105.95 late yesterday in New York, according to electronic currency dealing system EBS. The dollar was also at $1.2974 from $1.2986. The U.S. currency yesterday rose as high as $1.2960, the strongest since Feb. 16. It may gain to $1.2870 per euro and 107.10 yen this week, Aikawa said.

U.S. orders for durable goods may have risen 0.9 percent, following a 1.3 percent decline in January, according to the median forecast of 73 economists surveyed by Bloomberg News.

Core U.S. consumer prices, minus food and energy, rose 0.3 percent last month, after climbing 0.2 percent in January, the Labor Department said yesterday. Economists expected a 0.2 percent gain, based on a Bloomberg News survey.

`Very Solid'

The Fed's rate now exceeds the European Central Bank's benchmark rate by three quarters of a point, the most since March 2001. The ECB has kept its main refinancing rate at 2 percent since June 2003. In Japan, the central bank has kept borrowing costs near zero since 2001.

``The economy is proving very solid in the U.S.,'' said Yusuke Fujisawa, who manages the equivalent of $17 billion at Dai- Ichi Kangyo Asset Management in Tokyo. ``The dollar would be a natural pick, seeing how other economies are performing.''

Fujisawa said he may consider buying dollar-denominated debt. The U.S. currency may gain to 108 yen and $1.27 per euro in a month, he said.

Japanese manufacturers were more pessimistic in the January- to-March period for the second quarter, a government survey today showed, suggesting the economy may have trouble sustaining a recovery. The economy has shrunk in two of the last three quarters to Dec. 31.

`No Improvement'

In Europe, the Ifo institute yesterday said business confidence in Germany unexpectedly declined in March. Economic growth in the U.S. is poised to exceed the euro region's for a fourth year.

``I see no improvement in domestic demand this year,'' Bundesbank council member Hans Reckers said yesterday. ``Incomes are rising less and unemployment is not declining.''

The dollar's rally beyond $1.30 per euro yesterday signals the U.S. currency will extend its advance, said analysts at BNP Paribas SA and Brown Brothers Harriman & Co., who use trading patterns to help make their forecasts.

The dollar may rise to $1.2910 in less than two weeks, said Andrew Chaveriat, technical strategist at BNP Paribas in New York. After that, he expects the U.S. currency to breach its high for the year and rally to $1.2730 followed by $1.2550.

To contact the reporter on this story: Taizo Hirose in Tokyo at hirose2@bloomberg.net.

Last Updated: March 23, 2005 21:03 EST